The State government is heading towards a period of severe belt tightening due to sluggish tax collection and unexpectedly high spending.

The Cabinet, which reviewed the present state of the State finances at its meeting last week, had instructed Chief Secretary E.K. Bharath Bhushan to prepare a comprehensive strategy to handle the crisis and present the same for discussion at the meeting this Wednesday.

Giving a broad overview of the situation, Mr. Bharath Bhushan told The Hindu on Sunday that certain stringent austerity measures would have to be taken by the government along with earnest efforts to boost revenue collection. The reasons for fall in revenue collection were being identified.

The budget for this financial year had estimated the tax collection to go up by 34 per cent year-on-year, whereas during the first half of the financial year the increase registered came to only 12 per cent. Also, the expenses of the government had shot up far beyond the budget estimates.

“We created more than 16,000 posts in government service and the outgo on this account alone is more than Rs.600 crore [annually, compared to budget estimates],” he said, indicating one area of unexpectedly high spending.

There had also been areas from where revenue receipts had shrunk due to one reason or the other.

Receipts from stamp duty had been far below expectations. (The government had brought down the stamp duty with the intention of discouraging undervaluation of properties during transactions, but this was not followed up by the fixing of fair value. This is stated to be the reason for the fall in revenue from stamp duty).

Similarly, the revenue from State Excise Duty (on liquor sales) had come down inexplicably.

“The official version is that liquor consumption is coming down in Kerala,” he said, though he seemed not fully convinced about it himself.

There are such areas where the reasons for the fall in revenue vis-à-vis budget estimates have to be examined afresh.

(Meanwhile, the State had, on Saturday, notified the sale of government securities to mobilise a sum of Rs.750 crore to meet its ‘development expenses.’ The borrowing limit set for the State this financial year is a little above Rs.12,000 crore. With the latest sales, the State’s total borrowing this year would touch Rs.7,000 crore. Almost the entire second half of the financial year, when a bulk of the Plan spending would have to be attended to, is lying ahead. Big Plan cuts too may happen this year if the mid-year correction in finance management, now being attempted, does not succeed.)

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