The State budget was presented amidst several concerns being raised about the state of government finances. But the broad background is that of an economy which has been registering slow growth for a decade and experiencing frequent extreme climate events of late.
Return of migrants, outflow of students, rising interest rates, an imminent global recession and supply chain disruptions due to COVID-19 and the war in Europe make the picture complete.
The Economic Review published by the State Planning Board on Thursday points out that the State’s economy has rebounded by 12% in 2021-22 compared to 8.43% contraction in the pandemic year, 2020-21. Although this high growth rate is due to base effect, that the GSDP for the year 2021-22 is 2.5% above the pre-pandemic figure is a relief.
Looking at the Budget documents, we can see a reduction of fiscal deficit in the revised estimate (RE) for current year (2022-23) to 3.61% from the budget estimate (BE) of 3.91%. Similarly, revenue deficit is declining from BE of 2.3% to RE of 1.96%. It is difficult to see this as a trend of successful fiscal consolidation as it is achieved by reducing expenditure. But at the same time, the silverlining is that the compression has happened in the non-Plan revenue expenditure.
RE for non-plan expenditure is ₹1,34,374 crore compared to BE of ₹1,43,012 crore. An increase in Plan expenditure and within that an increase in capital outlay to ₹14,079 crore (RE) from ₹10,639 crore (BE) is a move in the right direction.
The thrust of the current Budget is on revenue mobilisation. Revision of rates in mining activities, property tax, motor vehicles tax, and fair value of land are some of the ways in which revenue is sought to be mopped up. But the most contested one will be the imposition of social security cess on petrol, diesel, and Indian-made foreign liquor.
The additional taxes will definitely burden the ordinary people. The way out will be to ensure that the economy grows fast in the near future to ensure more jobs. This requires additional investment. But the government is not in a position to find resources to invest. In fact, capital outlay under Plan expenditure is declining to ₹9,805 crore in 2023-24 from ₹14,079 crore this year!
This fall in capital outlay and a slow growth in the overall Budget size could be to make it more realistic in the context of many challenges listed in the initial paragraph. Along with those, the tapering off of revenue deficit grant from the Centre and caps on borrowing is expected to put extra pressure on the government finances.
In short, the lesson for Kerala should be that all its problems cannot be solved by Budgets. It requires a paradigm shift in the approach towards capital, investment and growth. Kerala should dream of becoming a $0.5 trillion economy in next ten years to solve its problems of unemployment and out-migration. That will be possible only by attracting more investment, especially FDI, and attracting more human capital to the State. The government should evolve to effectively regulate such an economy to the benefit of all.
(Author is Assistant Professor of Economics at St. Thomas College (Autonomous) Thrissur)
