The State is facing a major crisis in management of its public finance and resource mobilisation.
Even though, the UDF government enacted Kerala Fiscal Responsibility (Amendment) Act, 2011, which came into force from November 8, 2011, with revised targets for fiscal stability by progressive elimination of revenue deficit and sustainable debt management, the State saw a near-collapse of the financial system.
“Non-realisation of estimated revenue receipt (estimated in the budget) led to non-achievement revenue and fiscal deficit targets envisaged in the Act during the last four years,” stated the report of the Comptroller and Auditor General of India on State Finance for the year ended March 2015.
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All the three fiscal parameters — primary, revenue and fiscal deficits — increased during the period (four years) under review, “which also indicated reduced growth of receipts compared to expenditure.” In the final year of the UDF rule, the situation has worsened further.
“Currently we are in a bad shape in terms of public finance,” said K.N. Harilal, Professor, Centre for Development Studies. Over the last five years there is a major slowdown in the mobilisation of own tax revenue of the State. “From around 16 -17 per cent rate of growth (Revenue) per annum during 2006-11, it has come down sharply to around 11-12 per cent in 2011-2015.” He said, ‘‘there is a break down of rule of law in State’s finances…the revenue machinery of the government completely paralysed with corruption reaching its lowest level.”
The failure of mobilisation of resources affected mainly plan expenditures and capital expenditure of the government. “This is quite unwelcome in the context of keeping global recession. Kerala will have to find enough resources to launch major programmes for infrastructure sector. Our performance in the infrastructure sector is lagging behind the minimum that is required…this is true of roads, rail, energy and ports.
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Kerala’s is a service sector dependant economy that had enjoyed an accelerated economic growth during the last decade. For meaningfully introducing reforms and to maintain the quality of vital services such as health-care, education, road system, waste management, and so on, a great deal of efficient management of public finance and resource mobilisation is needed. During the last quarter of a century, Kerala has outdistanced States such as Punjab, Haryana, Gujarat, and Maharashtra in terms of per capita monthly consumption.
“The moot question is how come the State finance is in crisis,” asks M.A. Oommen, noted economist. For example, he said, as far back as 1960-61, the contribution of construction sector was only 1.57 per cent of State Domestic Product as against 12 per cent by the manufacturing sector. While today 15 to 16 per cent is contributed by the construction sector, only a little over 3 per cent of the commodity revenue is contributed by the construction sector. “This is not something we can boast about,” said Dr. Oommen. Indeed, the political economy of resource mobilisation leaves many things to be desired. “With no Planning Commission to give capital grants and the Centre clearly getting niggardly in supporting Centrally-sponsored schemes, the task of raising own-source revenue is going to be tough,” said Dr. Oommen, adding, “no state that values its autonomy can afford to treat own source mobilisation nonchalantly.”
For the last five years there has been a slowdown in mobilisation of own tax revenue.