Team Blitz India
NEW DELHI: Kerala’s economic narrative is in a state of paradox, where robust social development strides coexist with an acute fiscal crisis. The state, known for its progressive social indicators, is now struggling with a financial conundrum that has persisted since the 1980s and intensified over the last two decades. Kerala’s fiscal challenges, deeply rooted in its administrative fabric, present a complex puzzle of policy paralysis and financial mismanagement.
The fiscal predicament of ‘God’s Own Country’ is characterised by a lack of state-owned resources, an increasing dependency on borrowed funds to cover revenue deficits, and a ballooning expenditure on salaries, pensions, and interest payments.
A startling 79% of the state’s total revenue receipts are channeled into these three expenditures alone, leaving a meager portion for development and capital investments. The state’s fiscal deficit has soared to Rs 42,786 crore in 2021-22, further deepening the crisis.
Recent years have seen the crisis exacerbated by a combination of external factors and internal policy decisions. The Central Government’s policies, including a cut in the annual borrowing limit and the cessation of GST compensation, have been blamed for the recent exacerbation of Kerala’s financial woes. The outbreak of the COVID-19 pandemic and recurring natural calamities have further strained the state’s fiscal health, with the Finance Minister citing a loss of Rs 6716 crore in revenue deficit grants compared to the previous financial year.
The way forward requires a stringent review of past recommendations by bodies such as the Kerala Public Expenditure Review Committee (KPERC), the Comptroller and Auditor General (CAG), and the State Finance Commission (SFC). Recommendations spanning the last decade need reassessment to find relevance in the current context. The state’s aim to achieve a zero-revenue deficit is pivotal, with fiscal measures on both the revenue and expenditure fronts being crucial to this objective.
Policy analysts suggest that Kerala must avoid the use of borrowing to meet routine revenue expenditures and instead direct it towards capital investment. Furthermore, off-budget borrowings should be curtailed to create public assets that generate returns.
The resolution of Kerala’s fiscal crisis demands a comprehensive and coherent strategy, blending fiscal prudence with developmental imperatives. Only time will tell if the state can navigate through this storm and emerge financially robust.