Like any ordinary Malayali, the Kerala government too has spent way beyond its means this Onam.
On average, Kerala's monthly expenditure, plan and non-plan expenditures together, is pegged at Rs 14,500 crore. In the first week of September itself, the state's expenditure has crossed Rs 15,000 crore.
Government employees were given a bonus of Rs 4,000, and those not entitled to a bonus were given Rs 2,750 as festival allowance. On top of this, these employees were granted an Onam advance of Rs 20,000, which was shelled out along with the August salary paid in September. Nearly 4.5 lakh pensioners were given a festival bata of Rs 1,000.
According to the Finance Department, there has been a 30 per cent increase in salary and pension outgo on account of pay revision. So the additional benefits bestowed on employees will strain the exchequer like never before.
Then there were the sumptuous 14-item free Onam food kits, distributed to 87 lakh ration card holders for Rs 425 crore. Welfare pensions for two months were clubbed (Rs 3,200) and paid to 60 lakh beneficiaries. Besides, KSRTC was paid Rs 300 crore for salaries and pensions.
Finance Department officials say that compared to last fiscal, the additional expenditure necessitated by Onam crossed Rs 6,500 crore. “It is nearly double that we paid out last fiscal,” a top official said.
3 RBI facilities states depend on
No wonder, Kerala has resorted to ways and means advance (WMA) to make up for the generous Onam spending.
The WMA is one of the three kinds of fiscal cushion, special bank accounts, created by the RBI that states can dip into in times of difficulties; the other two being the Special Drawing Facility (SDF) and the Overdraft (OD).
The SDF is the money a state can secure by pledging the central government securities it has accumulated. It is only after this option is exhausted that WMA is resorted to. When even the WMA is not enough to fund daily needs, a state slips into OD.
Finance Minister K N Balagopal on Sunday assured that there was no need for Kerala to opt for the OD.
Why WMA is not a cause for worry?
However, resorting to the WMA is nothing extraordinary. States opt for the facility regularly. Simply because a state opts for the WMA does not mean it is in some deep irredeemable economic mess.
Based on their unique patterns of revenue and capital expenditures, the RBI has drawn up a daily WMA limit for every state. For Kerala, it is Rs 1,683 crore. For states like Uttar Pradesh and Maharashtra with high capital and revenue spending, it is Rs 5,680 crore and Rs 4,686 crore, respectively.
The RBI has envisaged the WMA facility as a method to finance the temporary mismatch in cash flows and it becomes a problem only if states view it as a milch cow to finance its long-term needs.
When is OD a sign of mismanagement?
The fact is, even opting for the OD for a few days is not a sign of fiscal breakdown.
As per RBI regulations, state governments can be on overdraft (OD) for 14 consecutive days. A state government can be in OD for a maximum of 36 days in a quarter, meaning 144 days in a fiscal year.
However, if the OD exceeds 100 per cent of the WMA limit (Rs 1,683 crore a day in the case of Kerala) for five consecutive working days for the first time in a financial year, the RBI will advise the State to bring down the OD level within the 100 per cent of the WMA limit. And if such a level of borrowing occurs on a second or subsequent occasion in the financial year, the RBI will stop all payments to the state forthwith.
It is no one's case that Kerala is so fiscally strained that the RBI will shut the door on its face.
Has Kerala been in OD before?
Like other states, Kerala too occasionally depends on the WMA and OD facilities.
Last Onam season in September Kerala had made use of the WMA for 10 days, borrowing an average of Rs 971 crore a day from the RBI. On one of these days, the WMA was not enough and Kerala went into OD. On that day, in addition to the WMA, it had secured Rs 322 crore (way below the 100 per cent limit of Rs 1,683 crore) using the OD facility.
Three months earlier in June 2021, Kerala had gone into OD for 12 consecutive days, and even then the average daily borrowing using the OD facility was only Rs 262 crore. At this scale of OD borrowing, Kerala could have borrowed for 14 consecutive days without a murmur from the RBI.
However, in September 2020, the Onam season, when COVID was at its peak, Kerala had used the WMA 29 times, borrowing on an average of Rs 1,137 crore almost every day that month from the RBI. During that month, the WMA was found to be inadequate on nine of these 29 days and Kerala slipped into OD during these days, borrowing an additional Rs 358 crore on each of these nine days, still way below the 100 per cent limit that RBI is concerned about.
Why fiscal distress could be fleeting?
But demonstrating that such fiscal imbalance is seasonal and not permanent, Kerala did not have to make use of even the SDF, forget the WMA and OD facilities, during 2020 October.
Though Kerala seems to be under unprecedented September stress this year, it still looks better off when compared to 2021. In 2021, Kerala made use of the WMA facility 108 times and was forced to take the OD facility 16 times.
This year till June, for which RBI figures are available, Kerala has made use of the WMA facility just 19 times and not once had it to resort to the OD facility.
What message did June 2022 hold for Kerala?
Unlike in 2021, when the WMA was used quite a lot, revenue-wise Kerala looks better placed this year.
For six months in a row, the monthly GST revenues nationally have crossed the Rs 1.4 lakh crore mark. This is reflected in Kerala's GST collections, too. Compared to August 2021, Kerala has seen a 26 per cent spike in GST collections this August; from Rs 1,612 crore to Rs 2,036 crore. In July, the growth was 29 per cent.
The growth in June this year is perhaps a sign that Kerala is not in as dire a situation as is made out to be. In 2021 June, the GST collection was Rs 998 crore and that was the month Kerala had to make use of the WMA almost daily and slipped into OD for 12 consecutive days.
However, this June the GST collection soared to Rs 2,161 crore, a whopping 116 per cent rise. Result: Kerala did not have to make use of even the SDF facility, leave alone WMA and OD. And since this year's Onam, coming after two muted COVID years, was celebrated with a certain greedy fervour, it is near certain that tax revenue figures for at least August and September are set to acquire giant-sized girths.