ViewPoint Kerala

Kerala Budget 2020 | Treasury management and democracy

Decision to scale down the annual Plan size by ₹3,000 crore is a bold one

An outstanding feature of the Kerala Budget 2020-21 is the painful but bold decision to scale down the annual Plan size by ₹3,000 crore.

It is noteworthy because it comes from a government steadfastly committed to the cause of development planning. The reduction in the Plan size and the decision of the 15th Finance Commission to provide the State ₹15,323 crore as revenue deficit grant, if realised fully and in time, would considerably ease the pressure on the treasury.

Treasury restrictions

Treasury restrictions in the State have a long history. It became acute during the previous UDF government when it introduced queuing of bills, arbitrary cuts of Budget commitments and a system of electronic ledger to park unspent funds.

Such ad hoc measures of treasury management undermine democratic control over public finance. They disrupt the priorities set by the Council of Ministers and voted by the legislature.

Plan size

The decision to reduce the Plan size, I should hasten to add, would not lead to a cut in welfare or development expenditure. Such a cut in government expenditure is not advisable in the present context of economic slowdown.

First, as the pattern of allocation of resources among competing goals, and the newly announced programmes show that the government has made a prudent effort to reset the priorities considering the resource constraint. Expenditure items deserving sympathetic consideration or having strategic importance have not been cut. Second, there will be considerable increase in the expenditure of institutions such as Kerala Infrastructure Investment Fund Board (KIIFB), financed by way of extra budget borrowings.

Initial hiccups

KIIFB has passed the stage of initial hiccups. Therefore, execution of projects and spending would pick up momentum during the year. Interestingly, for the LDF government ‘extra Budget borrowings’ is not the first best option to finance development.

It was forced to go for such suboptimal options because of the cap put on borrowings under the FRBM Act. There is no doubt in my mind that Budget is a much better tool for managing public finance, in mobilising resources as well as spending, because it is easily amenable for legislative scrutiny and democratic control.

Special efforts

Further, the government is making special efforts to integrate programmes undertaken through the Budget and off-Budget borrowings. It is important to avoid duplication of efforts and to achieve synergies. Contextually, the interim report of the 15th Finance Commission has stressed the need to phase out extra Budget borrowings of the centre as well as the States.

Such a position is unwelcome as it comes in the midst of an economic crisis. The commission should either substantially enhance the ceiling on fiscal deficit or formally accommodate off budget borrowings with proper regulatory arrangements.

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Printable version | Jun 6, 2020 11:46:41 PM |

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