Union Budget: Kerala hopes for a stimulus shot to overcome Rs 32,000 crore shortfall

No use in bringing petrol, diesel under GST, says Balagopal; seeks extension of compensation regime

Even as Union Finance Minister Nirmala Sitharaman is set to present her fourth Budget speech on Tuesday, Kerala is hoping for a stimulus shot to steady--or at least ameliorate--its careening economy.

Kerala has raised 18 demands at the December 30 pre-Budget meeting with Sitharaman in New Delhi. The State's Finance Minister, K N Balagopal, submitted the demands in writing as well.

The State's economy will face a crisis if the Centre doesn't approve at least three of the major demands raised at the meeting.

The COVID-19 pandemic has adversely affected the revenue of all the States over the past two years. Other States, too, have raised almost the same demands as of Kerala, and they are expecting Sitharaman to accept them on face value and make favourable announcements in her speech.

Rs 32,000 crore shortfall

According to State Finance Department estimates, the continuation of the current fiscal policies and economic situation would lead to a disparity of Rs 32,000 crore between revenue and expenditure. Even after adding tax and non-tax revenues, State's share from the Centre and loans, Kerala will still require Rs 32,000 crore to meet its expenditure.

Such a huge deficit will force the government to initiate drastic austerity measures, including withholding the salaries and pensions.

Officials have warned the government that the State's tax revenue will see a dip of Rs 1,400 crore this year alone. The situation is likely to worsen next year.

The Central Finance Commission grant of Rs 1,276 crore per month to Kerala has been a blessing for Kerala. The total amount, Rs 19,000 crore, for the year, will decrease to Rs 13,000 crore next year. It translates to a deficit of Rs 6,000 crore.

An understanding was reached with the Centre that it would compensate the remaining amount if the State could not achieve 14% compounded growth in taxes. The understanding was reached ahead, and as part of India shifting to the Good and Services Tax (GST) regime. The five-year validity of the GST compensation agreement will expire now.

Adding to the woes of the State--which has been facing a backlash from all revenue sources except from the sale of liquor, lotteries and land registrations--its expenses will spiral in the coming financial year.

The State has a backlog of Rs 5,600 crore due to service pensioners and Rs 12,000 crore to government employees. Additionally, the pay revision has placed an additional burden of Rs 14,000 crore on the State.

The state of Kerala's finances is such that even if it borrows the entire Central allocation, it will not be able to avoid a crisis. The State will be in dire straits if the Centre does not accept at least its demands for an extension of the GST compensation for five more years, hiking the borrowing limit, increasing Central grant, and raising the Centre's share for welfare pensions.

Though extending the GST compensation package is the prerogative of the GST Council, the States are expecting Sitharaman to drop some positive hints in her speech.  

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