A bland budget turns a blind eye to the debt trap | Kochi News

I expected a more succinct and pragmatic budget presentation from Finance Minister KN Balagopal without too much disguise. He spent much of his introductory time announcing new projects and programs to be funded by the KIIFB. It looked like he was presenting a KIIFB budget. Since the assembly does not have the power to interrogate the KIIFB budget, one wonders whether Kerala has compromised on the sanctity of its government budget.
The second point I want to highlight is the seriousness of Kerala’s public finance crisis. Ordinary people don’t understand budget jargon. I will therefore highlight the growing gap between total annual revenue (excluding borrowings) and total government expenditure. This gap has widened so much that borrowing has increased dramatically.
The gap was 19% in the year ending March 2011, that is, the government’s total revenue was 11% lower than its total expenditure. In 2019, the normal pre-pandemic year, this gap increased to 23%. But in the year ending in 2020, that gap widened to 43% and in 2021 to 48%. Put simply, nearly half of government spending is now done through borrowing. The gap is filled by borrowing. More of the loan is used to pay off old debts and interest. Net borrowing is what is reported as a budget deficit and available for actual spending. Of the two budgetary legs on which the government walks, one is borrowed.
The third point concerns Rebuild Kerala. The report, prepared after the 2018 floods by the UN and the Kerala government, estimated an amount of Rs 31 thousand crore for reconstruction over a three-year period. This period ended this month. The new allocation of Rs 1,600 crore means it is still a work in progress. Why does the government not report to the people the amount mobilized for reconstruction, from what sources and at what cost and for what purpose? What is the progress? Without a word about it, an impromptu allowance is disconcerting, to say the least. What is at stake is the credibility of the government.
It is also important, even crucial, to know the role of the KIIFB. While it has sanctioned projects worth Rs 70,762 crore, the disbursement is only 24%. Independent reports suggest that spending on completed projects is only 10% or less of the approved total. This is the record of the last six years. The gap between the lip and the cup is quite wide. When the government is the guarantor of loans contracted by the KIIFB, the ultimate responsibility for repayment also rests with the budget. Therefore, the loan outstanding is significantly higher than what is disclosed in the budget documents. This is also the case when the government provides guarantees for public sector loans. Much of this sum is eventually repaid by the government through “loans to public sector enterprises”. The facts must be published and the clouds lifted.
While I welcome the many initiatives that are in the new emerging knowledge sectors, including research and development, it is unfortunate that the government has to rely on loans outside of the budget format. The fact that the efficiency of tax collection is steadily declining does not seem to bother the government at all. He’s bold enough to state, in his place and out of place, that the proposed K-Rail will be implemented come what may. But no declaration of this kind is heard in the event of full recovery of tax and non-tax contributions whatever happens. The best performance in tax collection efficiency was from 1975 to 1986 at Rs 12.4 for every 100 rupees of state revenue. This fell steadily to Rs 8.17 when the LDF government took power in 2016. For the year ending March 2021, it fell further to Rs 6.5. If the average efficiency of tax collection from 1975 to 1986 had been maintained, an additional 49,000 rupees would have entered the government pot this year. What a loss! Except for a few scratches here and there, no major initiative to increase the efficiency of tax collection is seen.
The pandemic-related situation has indeed affected the economy negatively, but there is no reason for a drop in the efficiency of tax collection because it is a ratio. Moreover, we have reason to believe that the pandemic situation has been unduly taken advantage of by new tax evasions. For example, between March 2020 and March 2021, state revenue decreased by 4% but the state government’s own revenue decreased by 13.1%, 3.3 times more than the decline in revenue of State.
Increasing the efficiency of tax collection is indeed the main way out of the debt trap. The use of borrowing within reason is indeed part of the management of public finances but does not impose an undue burden on future generations.
The other way to increase budget revenue is to ensure that public sector units do not become a burden on the government. Almost half of the more than 90 public sector companies are in loss and the net loss is around Rs 2,000 to Rs 2,500 crore per annum.
The waste of scarce public money due to appalling time and cost overruns in public projects is another story. The people of Kerala have yet to see a reversal of these self-destructive trends in the past four decades, if not more.
(KP Kannan is a development economist and former director of the Center for Development Studies, Thiruvananthapuram)


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