A study by the Gulati Institute of Finance and Taxation (GIFT), Thiruvananthapuram, has hinted at ‘‘strong indications’‘ of a fiscal turnaround in Kerala even as it lays stress on the need for revenue mobilisation and expenditure rationalisation.
The turnaround is demonstrated by a ‘‘significant increase’‘ in revenue growth coupled with reductions in revenue expenditure and borrowing, the study ‘State of State Finances’ by GIFT director K.J. Joseph and Associate Professor Anitha Kumary L. published in the latest edition of Kerala Economy said.
In the first eight months of 2022-23 (April-November), revenue receipts — comprising State’s own tax revenue, own non-tax revenue, share in Central taxes and grants-in-aid — displayed a growth rate of 27.13% compared to the same period in 2021-22. Tax revenue grew at a rate of 34.83%.
During this period, revenue expenditure declined by 4.63%.
In the first six months of the fiscal (April-September), the recorded growth in capital expenditure (5.0%) had been marginally lower than the all-States average of 5.6%. The study attributes this to Kerala’s use of the Kerala Infrastructure Investment Fund Board (KIIFB), Rebuild Kerala and similar initiatives for financing capital investment over and above the budgeted capital expenditure.
During April-November, Kerala has also substantially reduced its borrowing (-52.4%), which too is indicative of fiscal consolidation. The outcome of revenue mobilisation and expenditure compression measures is evident from the decline in all indicators of deficit, according to the study.
According to Dr. Joseph, efforts towards fiscal consolidation were out of the question during the past five years which were characterised by fiscal shocks arising out of demonetisation, floods and the COVID-19 pandemic. ‘‘Then, the State’s focus was on saving lives and livelihoods and social sector expenditure increased by 162%, the highest in India. Tax-related revenue also did not go up as expected due to GST-related issues, especially IGST. Now the economy is turning around,’‘ Dr. Joseph said.
The study, at the same time, underscored the need to sustain the trend through revenue mobilisation and expenditure rationalisation.
‘’Given the Vertical Fiscal Imbalance inherent in India’s fiscal federalism along with criteria of devolution adopted by the Finance Commission which is inimical to the interest of Kerala, the State’s fiscal health is very much contingent on its own initiatives in fiscal consolidation,’‘ it said.
