Budget announcements gather dust as Kerala govt plays to the gallery

The State government had made several announcements to adapt to the COVID-19 situation when the pandemic hit Kerala in 2020. The move to provide free and less expensive laptops to students was the most important announcement the government had then made to ensure that students would not miss their classes as schools were closed to prevent the spread of the virus.

Cut to 2022. Ask students whether they had received the promised laptop, and they might respond with a counter question: are they necessary now?

The laptop distribution plan, announced two years ago, has not yet started even though schools have now resumed in-person classes. This dichotomy between a promise and walking the talk is apt in the case of several announcements made in the State Budget.

The Vidyashree laptop scheme, intended to roll out through Kerala State Financial Enterprises, hit a roadblock due to certain hurdles in the tendering process to procure the gadgets. The Vidyakiranam scheme, envisaged to provide laptops with contributions from the general public, too, met with the same fate.

Incidentally, the neighbouring Tamil Nadu had provided free laptops for students 10 years ago. Still, Kerala failed in rolling out the scheme, thanks to one single reason: inefficiency of the rulers and officials in implementing announcements.

The previous Budget had announced a plan to create office spaces with internet connectivity across the State, including in small towns, to promote the government's 'Work-Near-Home' project. The announcement was made in the backdrop of the COVID-19 situation.

As part of the scheme, it was decided to opt for a franchisee model and avail office spaces on rent at various places in Kerala to commence Work-Near-Home Centres. It was also decided to provide these centres with all office infrastructure, including conference rooms.

The Work-Near-Home centres were meant for those who lacked office facilities at their residences. They could use the facilities by paying a rent, it was then said.

As part of the preliminary works, the government allotted Rs 305 crore to the Technopark at Thiruvananthapuram. Realising that the Work-Near-Home scheme was not working as envisaged, the government gave Technopark permission to divert the allotted amount to construct a perimeter wall.

The Smart Kitchen project, also announced in the previous Budget, too, has been remaining on paper. The plan was to provide soft loans to women to purchase household kitchen equipment and thereby ease their workload.

Why projects fail to take off

The major reason for projects failing to take off could be attributed to the government playing to the gallery by including them in the Budget without considering if they could be practical. The Finance Department invites recommendations from various departments before preparing the Budget, and each department would forward a set of dream projects without applying thought. Such projects would be announced in the Budget. This has been the trend in preparing the Budget over the years.

The government, which frequently hikes the fair price of land, has not even fixed the fair price at several places. A decision made two years ago to revise the fair price has not been implemented. The result: properties are being registered after hiking the fair price that was fixed 10 years ago.

The yawning deficit

The State government is expecting a revenue of Rs 1.63 lakh crore and an expenditure of Rs 1.62 lakh crore in the Budget for the financial year 2022-23, which Finance Minister K N Balagopal will present on Friday. However, expenditure has been overshooting the limit, and revenues failing to meet the target over the years. To tide over the deficit, the government used to go for availing maximum loans to meet the expenditure.

About 75 per cent of the State revenues has been spent on repaying the loans and to provide pension and salaries of retired and serving government officials. The government gets only about Rs 20,000 crore to implement the projects announced in the Budget. Even the expenditure on new projects would be slashed to address the severe financial crisis.

Considering the current financial health of the State, the government has prohibited the departments from spending more than 82 per cent of the allocation.

The lot of KIIFB

Shortage of funds forced the first Pinarayi Vijayan ministry to form the Kerala Infrastructure Investment Fund Board (KIIFB) to implement projects worth Rs 50,000 crore in five years. With the formation of KIIFB, major projects announced in the Budget became its responsibility. Currently, KIIFB has taken up projects worth Rs 70,000 crore.

The government has been providing KIIFB half of the motor vehicle tax and Re 1 from each litre of petrol sold in the State. KIIFB uses this amount to repay loans it has availed. There are serious apprehensions on whether KIIFB itself would derail due to the financial burden it is forced to take up.

Reluctance to collect tax

The government has been lackadaisical in collecting the Goods and Services Tax (GST). It, apparently, has been apathetic and found comfort in the compensation from the Centre.

The complacency in collecting tax was more during the first Pinarayi government. Though the demonetisation, two back-to-back floods and COVID-19 had affected the tax revenue, the government was ineffective in acting against tax evaders.

The major reason for this ineffective interference could be attributed to the government's concern that such a crackdown would enrage merchants. Though the pending Value-Added Tax (VAT) of Rs 6,000 crore was earmarked for several amnesty projects for tax evaders, no effective move was made to collect the amount.

The 15 per cent increase in tax revenue is a positive sign, but it is highly unlikely that the government could collect Rs 17,000 in taxes to meet its expected increase.

Borrowing overshoots limit

The previous Comptroller and Auditor General (CAG) report on the State's finances has presented a worrying fact. The report, which evaluated the government's performance in garnering revenues and expenditure, has found that the State had overshot the target only in availing loans.

The previous Budget announced that the government would borrow Rs 33,112 crore, but it went 33 per cent beyond the declared target to touch Rs 44,313 crore as the government availed additional loans of Rs 11,201 crore. The worrying factor is that despite having a repayment liability of Rs 3.5 lakh crore, Kerala is still hoping to avail more loans.

The CAG has raised another concern also. The State's financial deficit is severe and it was reached 34 per cent, meaning Kerala had spent 34 per cent over its revenues.

Kerala faced its worst financial crisis in 1999-2020 when the State lacked funds to tank up government vehicles and even for buying stationery items. Treasuries were closed as the financial deficit shot up to 37 per cent.

Today, the current deficit is 34 per cent, which portends yet another crisis.

Dr B A Prakash, Former Chairman, State Finance Commission, said "the salary revision during the time of a financial crisis further aggravated the situation. The revision has placed an additional annual burden of Rs 12,000 crore to Rs 14,000 crore on the government. Did the government evaluate whether it could find the additional amount from somewhere before revising the salaries? The pay revision commission put the additional burden at Rs 6,000 crore. But the burden has now doubled. At the same time, the government did not implement the pay revision commission's recommendations to reduce expenditure."

Issues galore

1. The GST compensation from the Centre will end in May. If the Centre decides to discontinue paying States the compensation, Kerala will lose Rs 9,000 crore in revenues. Such a scenario will derail the revenue and expenditure envisaged in the Budget, and the government will land in a serious crisis.

2. The government will have to meet its responsibilities of distributing the pending pay revision and pension dues as well as payment against surrendering leaves. If the State revenues do not increase, these could not be distributed, causing discontent among the employees.

3. KIIFB cannot take up further projects. If revenues do not increase, the State cannot roll out more projects under budgetary allocations. This will affect development activities.

4. The government is helpless in implementing several austerity measures such as hiking the pension age, slashing the number of personal staff members, controlling aided institutions, etc., due to political policies, and interference of pressure groups.

5. Collection of taxes without fail is of utmost importance. However, official apathy may hinder the collection of taxes. Strong intervention by the government is necessary to change the officials' attitude.

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