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Budget marksmanship, a convenient casualty in Kerala

Vinson Kurian Thiruvananthapuram | Updated on June 14, 2021

The budgets presented by the outgoing and newly formed governments leave many questions unanswered

Thiruvananthapuram-based economic and policy think-tank Gulati Institute of Finance and Taxation (GIFT) recently hosted a 'rare' virtual discussion on two state budgets for 2021-21 presented five months apart in the State Assembly and on either side of the Left Deft Democratic Front (LDF) winning a historic second term.

Rare, because it saw two Finance Ministers acknowledge bouquets and also receive brickbats live on a public platform from a galaxy of intellectuals and economists. Setting the tone for the more than three-hour discussion, leading economist MA Oommen observed that the Finance Ministers may share the same ideological predilections but represented separate governments. This cardinal truth seemed to have been lost on the budget makers.

Fudging of numbers alleged

He wondered how the absolute numbers of Revenue Deficit and Fiscal Deficit of the first budget presented by Thomas Isaac on January 15 and the Revised Budget by KN Balagopal on June 4 could have been maintained at the same level. For instance, the first budget proposed a Revenue Expenditure of ₹1,45,286.00 crore against Revenue Receipts of ₹1,28,375.88 crore (Revenue Deficit of ₹16,910.12 crore. Table 9, Medium Term Fiscal Policy and Strategy Statement).

Also read: Kerala FM presents revised Budget sans tax proposals

The Revised Budget by Balagopal employed different numbers of Revenue Expenditure of ₹1,47,891.18 crore and Revenue Receipts of ₹1,30,981.06 crore to arrive at the same Revenue Deficit of ₹16,910.12 crore, and thereby maintaining the GSDP ratios of the two deficits intact. Fudging of numbers does not reflect budgeting wisdom when rules demand that public money must be spent with full accountability.

It doesn't require rocket science to imagine that during the period from January 1 to March 31,2021, the outgoing government would have incurred large additional expenditure due to the lockdown. Still, some crucial numbers were inexplicably repeated in the Revised Budget. One cannot but wonder if the authorities didn't have updated numbers for the five-month period that elapsed between the two budgets.

Defending the numbers, Thomas Isaac said that receipt in the interregnum of a revenue deficit grant of ₹19,000 crore, which was unexpected, had made all the difference. The revenue income had to be projected at a higher level than intended. Revenue deficit in either of the budgets did not change because the state's own revenue would have been affected due to the lockdown, even after accounting for the revenue deficit grant. Revenue expenditure would go up in the bargain but there was no way of knowing exactly by how much.

Thomas Isaac defends

A feared Covid third wave can only further cloud the projections, going forward. In which case, even the next Budget could but become a repeat of the immediate previous one. So, successor KN Balagopal could only hope to calibrate the state's own revenue and additional spending at some level by keeping the Revenue Deficit and Fiscal Deficit largely unchanged. This was the rational approach available for him when he had less than two weeks to prepare a Revised Budget.

According to Isaac, no other state has come up with a Covid stimulus package. Here, Kerala has proposed ₹40,000 crore that dwarfed the ₹5,000 crore declared during the 2008-09 meltdown. Now, borrowings outside of the budget by Kerala Infrastructure Investment Fund Board (KIIFB) are by themselves another stimulus package. "Even this year, they will inject ₹30,000 crore into the economy. Suffice to say we'll come out stronger post-Covid and return to recovery."

RK Singh, Finance Secretary, said that the state is faced with considerable structural challenges on the economic and fiscal fronts. Capital expenditure as a percentage of GSDP is very low at 1.1 per cent against a national average of 2.5 per cent. Hopefully, KIIFB intervention will lead to some improvement. The huge unemployment rate of 11 per cent against all-India average of 6 per cent too warrants urgent attention.

Large committed spend

The unconscionable level of revenue expenditure with a disproportionately larger component of committed liabilities built in, is another challenge. Committed spend on salary, pension and interest payment at 61 per cent of total revenue expenditure is much higher than other states.

Kerala hopes to meet these challenges through higher expenditure via KIIFB as well as through externally aided projects, many of which have been tied up in recent times. “I'm cautiously optimistic that these interventions will ensure higher levels of growth and help sustain the Kerala model of development in the short and medium term," Singh said. But he was silent on the various numbers that Oommen had raised.

Push of bank credit into economy

S Adikesavan, top banker, said that the June 4 budget envisages a push for bank credit to targeted areas aggregating to ₹8,300 crore. This is easily doable because the average surplus liquidity in the system is ₹4.5 lakh crore. RBI studies suggest that bank credit has a multiplier effect of 1.6-2. So ₹8,300 crore will add roughly ₹20,000 crore in terms of output to GSDP/GVA. Proposed spending on infrastructure by KIIFB will have a multiplier effect of 2.45.

“If these two are done, the budget would have achieved its goals. I would however emphasise two things here: One, spend the budget. Two, banks can lend provided equity comes first.”

Published on June 14, 2021

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