: As Kerala heads for another Assembly poll, a section of economists feel there is an urgent need to restructure public finances by refocusing on equality and economic efficiency.
“The inequity in public resource mobilisation and public expenditure needs to be corrected,” says Jose Sebastian, Associate Professor, Gulati Institute of Finance and Taxation (GIFT).
As on March 31, 2015, the total debt of the State was over 1.5 lakh crore. During the last 10 years, it has risen by Rs. 1,08,130 crore. The State is mandated to wipe out revenue deficit by 2017-18 by the 14th Finance Commission. But the revenue deficit in 2014-15 was Rs.13,795.96 crore. In all probability, by the time the final figures are made available, the deficit for 2015-16 would be above Rs.15,000 crore. “If this trend continues, the State would not be able meet the 14th Finance Commission target.”
Further, the State has to repay a debt of Rs.42,000 crore within the coming seven years. The new government would have to deal with a huge fiscal crisis considering the outstanding payments to several agencies.
Dr. Sebastian says the primary reason for the fiscal crisis is that the State is not mobilising adequate public resources. Going by 2014-15 figures, four commodities account for 56.80 per cent of the State’s own revenue — liquor (19.75 per cent), petrol (13.16 per cent), motor vehicles (11.08 per cent), and lottery (12.81 per cent). The heavy reliance on liquor and lottery for revenue places noticeable burden on the poor and downtrodden sections. It is these two sections that are more addicted to liquor and lottery. The gross inequity in public resource mobilisation will have to be corrected through a progressive expenditure policy.
“It is here that the State is failing. The public expenditure policy is heavily in favour of the middle class and rich,” Dr. Sebastian warned. Of the total revenue, 60 per cent goes towards paying salary and pensions. Nearly 20 per cent goes towards interest payment.
“Since these are committed expenditures, the volume of public resources flowing to the poor and marginalised has been falling, in a scenario of fiscal stress.”
Subsidies for farmers
K.N. Harilal, Professor, Centre for Development Studies, says subsidies may not appear to be reaching the marginal farmers and small-scale manufacturers. “The government should have a proactive policy by ensuring fair prices for agricultural produce and help them introduce labour saving machines.” Further the government had failed to facilitate significant levels of low cost credit to farmers, he added.
Nearly 70 per cent of Kerala’s domestic income comes from services, with the primary sector contributing around 10 per cent and the secondary sector logging 20 per cent. “Such a situation happened in Kerala too fast with the Gulf boom and the increasing flow of remittances,” said Dr. Harilal. The solution, according to Dr Sebastian, is to mobilise more revenue from the middle class and the rich by properly targeting the huge subsidies flowing to them, “The levy on various services provided can be increased. There is huge revenue potential to be tapped by increasing the lease rent on government land and by raising the royalty on mining.” But along with raising revenue there should be a broad consensus on the manner in which public resources are expended. The government has to put in place some mechanism whereby more public resources flow to the poorer sections.
The public expenditure policy is heavily in favour of the middle class and rich
Jose Sebastian,Associate Professor, GIFT
