On paper, the last Budget of the LDF tenure looks like a miracle.
The state's revenue has dropped to a historic low and government expenditure is projected to shoot up in the coming fiscal. Being an election year, finance minister Thomas Isaac has announced virtually no new resource mobilisation measures either.
Yet, in what can be considered magic of fiscal containment, revenue and fiscal deficits have dipped appreciably.
But a close reading of the Budget documents would reveal that, like any good magic, Isaac's Budget feat was just make-believe, a mere illusion.
Isaac's magic number
It is usual for a magician to draw the attention of the viewers elsewhere when he wants to fool them. Likewise, by captivating his audience with grand plans for employment generation and poverty eradication, Isaac shrewdly buried improbable revenue estimates inside maddeningly obscure budget documents that the layman normally keeps away from. Higher revenue receipts lower deficits.
It is these crazily unbelievable figures that have given Kerala economy the unlikely impression of being stable and Isaac the image of a fiscally prudent leader.
This is a trick that finance ministers usually resort to. But Isaac seems to have taken things to the extreme.
In his last year's (2020-21) budget speech, made eight days after the first Sars-CoV-2 case in the country was detected in Kerala on January 30, Isaac had estimated a tax collection of Rs 67,420.01 crore. This meant a 21 per cent growth in tax collection over 2019-20 fiscal, wildly optimistic considering that tax growth had never gone above 10 per cent during the last seven fiscals.
Even in the best of fiscals, when the state's growth shot above the national average, the state tax collection growth had never topped 10 per cent.
As it turned out, the tax revenue fell to Rs 45,272.15 crore, falling short by Rs 22,147.86 crore of the budget estimate. This was a drop of nearly 35 per cent from the budget estimate but, shockingly, was 11 per cent lower than even the tax collection of the previous fiscal (2019-20).
This was the first time Kerala recorded a negative growth rate in tax collection in the last half-century.
Clearly, COVID-19 has to take most of the blame. The government also cannot be faulted, in fact, it should be highly commended, for stepping up welfare measures during the pandemic.
Revenue deficit, expectedly, rose from 1.70 per cent to a decade-high of 2.94 per cent, and fiscal deficit shot up from 2.79 per cent to 4.25 per cent, which again is a decade-high figure.
But this year's budget makes it seem as if COVID-19 was a minor disturbance with no long term repercussions. All of a sudden, revenue and fiscal deficits have fallen to old normal levels.
Calculations on a flying carpet
Isaac has wowed his audience but here is how he pulled off the feat. Using some extraterrestrial logic, Isaac has estimated that there will be a 61.5 per cent increase in tax collection during 2021-22 fiscal. Tax revenue, Isaac's budget figures show, will swell from Rs 45, 272.15 crores this fiscal to Rs 73,120.63 crore in 2012-22.
Non-tax revenues (mostly lotteries) are also subjected to such steroidal optimism in Budget 2021-22. Annual non-tax revenue growth, which conventionally is either stagnant or appreciates only marginally (less than 5 per cent), is also estimated to increase by 62.7 per cent. From Rs 9121.27 crore this fiscal, it is expected to yeast up to 14,835.79 crores.
Never before has a finance minister propelled his optimism on a flying carpet borrowed from Arabian Nights. When a magician defies earthly laws, it is fun. It is not when a finance minister does so.
Here are the rates of growth in tax revenue in the years (2016 to 2018) when Kerala, according to the latest Economic Review, staged a revival in growth: 8.2 per cent in 2016-17, 10.1 per cent in 2017-18, 9 per cent in 2018-19. 9.9 per cent in 2019-20.
Even during Kerala's best years, during Isaac last tenure under V S Achuthanandan and the early two years of KM Mani under Ommen Chandy, the growth in taxes has never crossed 23 per cent.
Poor man smoking a pipe
On election eve, restraint is not a sensible virtue. A whimsical estimate of tax and non-tax buoyancy was perhaps the only option left to him to pull down both the revenue and fiscal deficits, to 1.93 and 3.5 per cent respectively.
Votes probably were not Isaac's sole concern. Healthy deficit indicators, he knows, are necessary if banks and lending agencies are to continue backing his pet project: Kerala Infrastructure Investment Fund Board (KIIFB).
In short, what Isaac did was the equivalent of showing off as rich a debt-stricken man fitted out in a borrowed double-breasted coat and dangling a discarded smoking pipe in between his undernourished lips.