Kerala Cabinet has decided to bring a white paper on the State’s finances. This is expected to present a factual picture of what is widely described as a dire financial situation.
Perhaps it was the United Democratic Front (UDF) Government led by A. K. Antony which brought a white paper on State finances for the first time. In one of his early Cabinet briefings in 2001, he lamented that the previous government (Left Democratic Front- LDF) had left the State in a fiscal crisis with no cash balance in the treasury. Antony was not presenting many details to substantiate his claim which was being contested by the LDF. So, I, who was attending the briefing as a journalist, asked whether his government would bring out a white paper on the State’s finances. He seemed to agree. Some days later a white paper was released. The document listed outstanding payments and liabilities exceeding ₹4,000 crore. This staggering amount included unpaid contractor bills, loans from cooperative banks, and delayed salaries and pensions.
The Antony Government as well as the LDF Government that followed in 2006 did take some measures to improve the financial position of the State. But the results were modest. The UDF again came to power in 2011 and brought a white paper the same year. One of the points listed as gains of the 2001-2006 UDF Government was revenues from Sales Tax/VAT and Motor Vehicle Tax going up by a few percentage points in overall composition of State’s own tax receipts. The uncovered Budget commitments at the end of LDF rule exceeded ₹ 5000 crore. A major chunk of the revenues as before was going to pay salaries, pensions and interest.
The LDF’s fiscal policy often leaned toward expansive spending, with leaders such as former Finance Minister Thomas Isaac arguing that higher expenditure would spur development. The result of such policies was that State’s debts doubled every five years irrespective of whether the UDF or LDF was in power. After coming to office in 2016, the LDF introduced new mechanisms to mobilize debt outside the Reserve Bank of India’s purview, notably through the Kerala Infrastructure Investment Fund Board (KIIFB). In recent years, the LDF faced criticism for wasteful expenditure—charges the current government now appears keen to highlight. In fact, the LDF too had brought out a white paper back in 2016 with Dr. Isaac as Finance Minister.
The third in the series of white papers by the UDF, that is being proposed now, differs from earlier ones in that the Chief Minister V. D. Satheesan proposes to enlist the services of financial experts from outside the Government too in preparing it. Apparently, the new Chief Minister wants them to suggest corrective measures. Whether he can rein in mounting debts and deficits remains uncertain, but the forthcoming document may offer better insight into options before him.