The presentation of the annual Kerala budget by the state Finance Minister KN Balagopal in recent years has been a very insipid affair. The previous Finance Minister, the verbose and venerable Dr Thomas Isaac, used to season his budget with poetry and quotes, and the post budget discussions would inevitably be on the niceties around the budget. Dr Isaac would drift from one newsroom to the other, charming everyone with his intellectual might, ambitious plans, and romantic optimism, dismissing any questions on financial uncertainties. Balagopal tends to be media neutral and more matter-of-fact, and to his credit, is far more welcoming and accepting of the pathetic affairs of the state’s coffers. So on budget day this year, as the pundits and public were preparing for a dry budget with a few tax suggestions and austerity moves, his radical income generating measures of taxing the poor not only blindsided everyone but also infuriated the government’s closest allies.
There are no two ways about it, Kerala is in an extremely bad financial state. The debt has mounted to almost Rs 4,00,000 crore and this small state has overtaken most of the Indian states in most of the financial indicators. The debt/GDP ratio has spiralled to upwards of 37% and a 2022 RBI report titled ‘State finances: A risk analysis’ indicates ominous signs for the state. The major reason for the crisis is the inefficient handling by the successive Pinarayi Vijayan administration. Being a consumer state with virtually no big projects, the state is solely dependent on tax revenues. The ill-effects of GST, floods, and Covid, and the improper implementation of GST has resulted in over Rs 70,000 crore of tax money not being collected.
In 2017, the state had relaunched an ambitious off-budget infrastructure development scheme under the Kerala Infrastructure Investment Fund Board (KIIFB), essentially aimed at circumventing the budgetary loan taking restrictions imposed by the Kerala Fiscal Responsibility Act under the Fiscal Responsibility and Budget Management Act, 2003. The source of KIIFB will be cess on petrol, motor vehicle tax, loans, and grants from the government. After six years, KIIFB has turned out to be a damp squib. 962 projects worth Rs 75,000 crore were announced, but only projects worth Rs 6,300 crore have been completed by February 2022. Projects worth Rs 20,000 crore are in early stages of completion. The Comptroller and Auditor General of India in a report later declared that all off-budget borrowings form an integral part of state finances, thus landing all KIIFB projects in a self-created mess. The Congress-led opposition maintained a stance that KIIFB was irksome since the huge debt would be an essential component of our loan limits. The uncertainty over KIIFB has delayed all big projects resulting in an open revolt by MLAs from the Left stable, something hitherto unheard of in Left circles.
The discriminatory actions of the Union government is also to blame. The states’ share of the central tax revenue pool, which was 42% in the 14th Finance Commission, has been reduced to 41% in the 15th Finance Commission. The shareable net proceeds to Kerala have been falling considerably. During the 15th Finance Commission, the share of horizontal devolution to Kerala has shrunk from 2.5% to 1.925%.
The only saving grace in these years of financial crisis was that the welfare measures, including social security schemes, were protected. Around 60 lakh people in Kerala receive monthly pensions of Rs 1,600, a practice started years back and taken forward very well by all governments. Even though the major social pension was protected, there have been recent complaints of smaller schemes meant for those with disabilities, tribals, orphans, and single mothers that have been affected due to the financial crunch.
While it was expected that a few tax rates would be increased to service the social sector obligations, Balagopal surprised everyone by indiscriminately increasing the tax and cess rates in areas that directly affect households. A few of them are listed below:
> Social security cess of Rs 2 per litre on petrol and diesel
> Rs 20 extra for each bottle of Indian-made foreign liquor (IMFL) with an MRP of Rs 500-999
> Rs 40 extra for each bottle of IMFL with an MRP of above Rs 1,000
> One-time tax on new cars and bikes up by 1% and 2% depending on vehicle cost
> Fair value of land increased by 20%
> Stamp duty on flats and apartments raised from 5% to 7%
In addition to these budgetary blows, the water rates have been hiked by almost Rs 10 per unit while the electricity rates and public transportation rates also saw a steep hike in recent months.
Instead of taking remedial measures to collect the tax lacuna of over Rs 70,000 crore and declaring austerity measures, the government has dug into the pockets of the poor and the middle-class who are already burdened by the financial crisis. This doesn’t fit any model of socialism espoused by the Left government. The budget also disappointed the public by rehashing and remixing projects listed in earlier budgets. The Minister still doesn’t have an answer to how the state is going to achieve these capital intensive projects.
The opposition led by the Congress is out on the streets and there are widespread agitations across the state as I write this article. The public sentiment is very high and there is a major backlash on social media platforms. These protests cannot be seen in isolation. There is an already growing disgruntlement against the government in its handling of the economy, the spending extravaganza, and the appointment of party loyalists in government positions at high salaries. Unemployment is higher than the national average, but party workers are getting backdoor entries without any qualifications. The budget has added fuel to this fire.
Let’s hope that better sense prevails and the government rolls back these decisions. And on a lighter note, the state was happier when Balagopal spoke less. When the reticent Minister spoke for over 2 hours and 18 minutes this time, it unleashed mayhem.
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KS Sabarinadhan is a former two-time legislator and currently the Vice President of the Indian Youth Congress, Kerala.
Views expressed are the author’s own.