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Thomas Isaac's tightrope walk


Kerala finance minister Dr Thomas Isaac making his 2020-21 budget speech


Kerala Finance Minister Thomas Isaac presented his budget - the last budget of the government's term - when the state is going through an acute financial dowturn.  There may be a consolation that the growth rate of the state is better than the national average.  But that the recession has hurt the financial posiion of the state is confirmed by the fact of fall in tax revenue.  The rise of unemployment and public debt – both of which decelerate and even shrink development – will make economic recovery complicated.  Therefore,  the finance minister presented the budget with an admission that the treasury is in serious cash crunch.  He puts forward several approaches to overcome its causes.  But the proposals in the budget do not ensure solutions.  And he has not been able to include concrete schemes and reliable sources of revenue either.

The formula adopted by Thomas Isaac is to increase government spending,  as done in 2009;  thus expenditure has been declared to be 15 percent higher than the 2019-20 estimate.   But if revenue does not rise in proportion to the expenditure,  the government will fall into the whirlpool of deficit,  posing a threat to economic stability and development process.   The budget says that recession can be overcome only if revenue increase touches a level of 18-20 per cent.  But in an atmosphere of deep economic recession existing in the country,  such an increase is impossible.  When the increase in government's expenditure over five years was by 16.3 per cent on an average,  revenue increase touched only 13.26 per cent.   It is only a daydream that an economic upsurge that could not happen in five years,  will come about this year.

In fact,  the finane minister is walking a tightrope in the midst of various factors: loan issues arising from the economic discrimination shown by the Centre to the state,   the anxiety that expenditure cuts would deepen recession and the crises caused by revenue not rising as expected.   The Centre's discrimination in grants is one of the major causes of the sate's economic crisis. The Centre is bound to grant loans of three per cent of the state's internal revenue.   But the finance minister alleges that the Centre's approach of curtailing advances,  throws out of gear the state's economic planning. He  also blames that the Centre does not give grants and GST compensation that are due.   The Budget also points out that GST arrears owed by the Centre crosses the  Rs 3,000 Cr mark.   Even the finance minister himself is disappointed that the higher GST revenue,  which the state had expected as a consumer state,   did not materialise.   The anticipated deficit in the tax revenue durin the current year is estimated at Rs 10,111 Cr.   Since 2014,  the state should have received Rs 28,416 Cr,  but the amount actually received until December 2019 was onl Rs 15,030 Cr.  The only ways for the minister to survive this big fall in revenue,  are the KIIFB schemes and other tax boosting measures.

The promise of the minister is that during 2020-21,  Rs 20,000 Cr will be spent through KIIFB.  And most of the schemes announced in sectors of transport,  health and drinking water will be actualised through KIIFB bonds.   It may be that in view of the non-cooperation of the Centre,  the minister is left with no alternatives.  But the state's growth cannot fructify by betting solely on this. The finance minister has dug into several pockets with higher taxes – ranging from the seat of students in buses used by school students to the service to obtain thandapper, to the fair price of land, through property tax, services of village offices and registrar offices and right upto the vehicles that enter the roads.   The higher tax in the building industry,  a large-scale employer,  will further dampen the financial transactions in construction industry.  And that will make economic recession that much more severe.

Welfare schemes and agricultural allocation may benefit the rural sector.   And the budget proposals to reduce expenditure of Rs 1,500 Cr under several heads is also laudable.  Although it may be seen as a joke that without spending the allocated amounts last financial year,  another Rs 9,200 Cr has been set apart as new outlay,  the increase of plan allocation for local self-governments from 24 per cent to 25.93 per cent will benefit rural development.  The special schemes for economically backward regions of Kuttanad,  Idukki, Wayanad and  Kasargod are also to be commended.   Even after all the numerical acrobatics in the budget trapeze, the projected revenue deficit of the state is Rs 17,474.27 Cr.  The public debt for financial year 2020-21 will be Rs 24,491.91 Cr,  against the current year's Rs 19,987 Cr.  All in all,   the economic picture of the state drawn by the budget gives room for more anxiety than hope.

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