What is widely perceived as the inflationary potential of the Union Budget with its excise duty hike on petroleum products and other measures has landed the budget-making exercise in Kerala with fewer options, leaving Finance Minister T.M. Thomas Isaac with the need to innovate to keep the State finances in reasonable shape in a pre-election year.
By available indications, Dr. Isaac has been planning to go in for some serious resource mobilisation measures to ensure that the developmental and welfare commitments of the State were met without compromising on fiscal prudence. In his exchanges with journalists and the academia at different points in recent weeks, he had also hinted at the possibility of the State budget placing greater emphasis on public investment, public distribution, provision of wider welfare and social security cover and energy conservation. The Finance Minister had, in fact, spoken about his desire to make this a ‘green budget’ with several new initiatives at energy conservation and harnessing of renewable energy sources.
The Finance Minister was clearly banking on three major resource streams to strengthen the State coffers: the additional revenue that he anticipated from the roll out of the Goods and Services Tax (GST), money that would become available once the University Grants Commission (UGC) scheme was implemented and the tax revenue that could have come if it had complied with the Central directive to raise the Value Added Tax (VAT) on commodities such as textiles and the compensation due from the Centre for the changes it had effected on Central Sales Tax (CST) on specific commodities.
Stiff resistance
Union Finance Minister Pranab Mukherjee has announced that the GST would be rolled out only in 2010-11. Implementation of the UGC scheme, particularly the proposal for raising the age of superannuation of college teachers, has met with stiff resistance from coalition partners .
And, given the resource mobilisation measures announced by Mr. Mukherjee and the strong reaction to it from the Opposition partiesany major measure that would be seen as adding to the inflationary spiral is now a ‘no no’ for the Finance Minister. The only solace is the possibility of the State getting an estimated Rs.150 crore because of the hike in excise duty on petroleum products and the CST compensation if the States and the Centre are able to arrive at a decision on it at the earliest.
Although the space for manoeuvrability is getting narrower, the government’s welfare commitments are not.
It has already taken upon itself what looks like an ambitious commitment to extend the Rs.2-a-kg ration rice to families of workers in the unorganised sector as well. The announcement did not receive much attention, but it means that the government will be supplying rice at the subsidised price to at least an additional 10 lakh families.
