Tag Archives: Budget

Kerala’s whitepaper on finances: a critique

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Kerala’s whitepaper on finance, titled Kerala’s Fiscal Health: A Status Report, is indeed a political statement though Chief Minister V. D. Satheesan, claims otherwise. It contains many valid fiscal concerns, though not a complete or neutral assessment of Kerala’s finances.

The report is useful as a warning document highlighting genuine fiscal vulnerabilities. However, it is not a comprehensive balance-sheet assessment of Kerala’s finances. It focuses far more on liabilities, deficits and institutional weaknesses than on assets created, social returns generated, and the long-term economic value of public investment. A proper assessment require both sides of the ledger.

High debts and sustainability
Kerala, as the report points out, has one of the highest debt-to-GSDP ratios among major states. Committed expenditure (salaries, pensions and interest) consumes a very large share of revenue receipts. Interest payments remain significantly higher than the all-state average while capital expenditure is relatively low compared with many states.

Kerala's fiscal health report- an assessment

While repeatedly emphasising debt levels, the report gives little attention to the State’s high per-capita income, relatively strong human development indicators, strong tax-paying capacity and large remittance-supported consumption base. A state with higher income levels can often sustain higher debt ratios than poorer states.

The document focuses heavily on fiscal ratios, but ignores what the State’s spending has historically produced in terms of literacy, strong health indicators. It treats much expenditure as fiscal burden without evaluating returns generated by that expenditure.

KIIFB benefits receive relatively little weight
The report acknowledges KIIFB’s infrastructure achievements but devotes much greater attention to liabilities. A balanced assessment should also examine economic returns of those investments.

The report discusses revenue shortfalls but fails to give attention to GST collection growth trends, own-tax revenue growth, digitisation of tax administration and Improvements in compliance. These factors matter when assessing future fiscal sustainability.

The role of external shocks, such as floods in 2018 and 2019, Covid pandemic and global economic disruptions are understated, though the report mentions some of them.

Important information that appears missing
The report focuses extensively on liabilities, but fails to examine assets such as infrastructure, land and assents of public enterprises.Debt without assets is alarming, but debt accompanied by productive assets requires a different assessment.

Comparative analysis with similar States
The report compares Kerala with all-state averages. But Kerala differs significantly from many states in terms of demographic transition, ageing population, migration patterns and social-sector commitments. Better comparisons would be with Tamil Nadu, Punjab and Himachal Pradesh. Without such comparisons, some conclusions may appear more alarming than they actually are.

Public-sector reform costs
The report recommends privatisation, disinvestment and closure of financially weak public sector units. It, however, does not sufficiently analyse employment impacts, social costs, transition costs and political feasibility. It can be hoped these would be considered while taking decisions on individual companies.

Economic benefits of welfare spending
The report largely treats welfare expenditure as consumption. Many economists would argue that education, health, nutrition and local-government spending are investments in human capital.

The report’s underlying philosophy appears to be that fiscal sustainability requires lower public-sector dominance and greater private investment. That is a legitimate economic viewpoint. However, alternative viewpoints exist:

  • Development economists may place greater emphasis on public investment and welfare.
  • Keynesian economists may accept higher debt levels if they support growth.
  • Social-democratic analysts may view Kerala’s social spending as a productive investment.

Structural paradox
Kerala has a massive household consumption rate backed by foreign remittances (23.2% of Net State Domestic Product), yet its destination-based GST collections are profoundly weak. While it briefly reasons that consumption leaks to producing states, it leaves a gap in explaining why tax administration/enforcement has failed to capture the final consumption tax slice effectively at point-of-sale within the state borders.

The report says that auditors evaluating high-profile transactions—such as the high costs incurred from raising Masala Bonds and massive consultancy payments routed through the Chairman and Managing Director (CMD)—were blocked because “supporting documents pertaining to payments were not made available for scrutiny”.

Former Finance Minister K. N. Balagopal has criticised the government in the Assembly for giving access to ‘secret’ documents from the Finance Department to outsiders as some outside experts were on the panel that prepared the report. Only those who have something to hide will oppose transparency. Transparency is the soul of democracy. The Report makes many aspects of the State’s finances transparent.

(This article and image have been prepared with assistance of AI)

Governor redeems

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Finance Minsiter K. M. Mani

Kerala Finance Minister K. M. Mani presenting the Budget for 2015-16 in the Assembly on March 13, 2015 amidst vandalism by Opposition

Kerala Governor P. Sadasivam has at least nominally redeemed the prestige of Kerala legislature by warning legislators about their conduct.

A former Chief Justice of Supreme Court of India, Sadasivam will not have failed to notice the obvious break down of not only Constitutional norms but also gross violation of democratic principles by the Opposition. There is no place for vandalism in legislative bodies in a democracy. However, reaction from opinion leaders was generally muted while the ordinary people on the social media could do nothing more than lampooning the politicians.

The Governor’s remark that the happenings on the floor of the Assembly on Friday (March 13, 2015) may even justify submission of a report by the Governor to the President under Article 356 of the Constitution of India is a rebuke to both the ruling and Opposition fronts. What the Governor hints is the vandalism of the kind in the House amounts to Constitutional break down warranting dissolution of the Assembly.

The Speaker N. Sakthan could not maintain even a semblance of order in the Assembly because of his reluctance of use force. Normal practice in the House is to use the watch and ward to cordon the podium of the Speaker as soon as the Opposition starts disruption of proceedings. On Friday, the Opposition had started their protest even before the House was called into session. Speaker probably hesitated because he was new to the Chair and did not want to start with a direct confrontation with the Opposition and become a direct target of the Opposition in the coming days.

The Opposition leaders had gone to the Governor saying that the presentation of the Budget was not in order, after creating all the disorder. The Governor has indirectly rebuffed them by accepting the Speaker’s stand that the Budget was duly presented. The Speaker could not be seen as conducting the business of the House during the bedlam created by the Opposition who had also practically gheraoed the Speaker and thrown his chair off the podium in gross disregard to the prestige of the House and its privileges. (The procedures adopted in the House for presentation of the Budget could be irregular but could not be challenged in a court of law. The House is the final arbiter of its own procedures).

The Governor, who himself is part of the Assembly as head of the State, has hinted that the further proceedings on the Budget including passing of the demands for grants on account and Appropriation Bill should be done in an orderly fashion. He may not condone total absence of order and decorum.

 

Discriminating in favour of women

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Finance Minister P. Chidambara with Budget papersFinance Minister P. Chidambaram rides the wave announcing special programmes for women. However, the announcement of a public sector bank exclusively for women is an admission that existing public sector banks does not treat women equally.

That women are discriminated against by banks and that they are not getting adequate banking services is a shame. This is when one of the premier banks like the ICICI Bank is headed by a woman. The government has been able to cater to senior citizens to some extent through regulation. (They still face problems in using schemes such as reverse mortgage.) The government is apparently not able to do this for women— that is to force all banks to treat women equally.

A separate bank for women would solve the problem only notionally. If the same logic is applied to other areas, we would soon need an exclusive bank for SC and ST, minorities and backward classes.

Another scheme is ‘Nirbhaya’ for empowerment of women. The contours of this scheme are yet to be defined. We had scores of programmes in the past for empowerment of women. Like many other government scheme, they did not achieve much. What ‘Nirbhaya’ would do is to be seen.

Following the Delhi incidents, we are in the era of positive discrimination. Women returning from abroad are allowed to bring gold worth Rs. 1 lakh while men can bring only half the quantity. (For women, financially capable of travelling abroad, this is a pittance.). Well, this proposal violates equality before law and hence would be ultra vires of the Constitution.

 Budget highlights