Recession could force a 30% cut in plan outlay this fiscal

Recession could force a 30% cut in plan outlay this fiscal
Finance Minister Thomas Isaac

Finance Minister T M Thomas Isaac painted a grim picture of the state's finances in the Assembly on Tuesday. He said the state would lose nearly Rs 20,000 crore this fiscal and hinted that 30 per cent of the state's annual plan would have to be guillotined.

“We are moving forward in the realisation that the state plan fund would have to be cut by at least 30 per cent,” Isaac said while replying to the discussion on Supplementary Demands for Grants in the Assembly. “We have already instructed government departments to re-prioritise their expenditure for the remaining part of this fiscal,” Isaac said.

The state plan outlay for 2019-20, excluding central share, is Rs 30,610 crore. Over Rs 9,000 crore of this is now expected to be cut.

According to the finance minister, the primary reason for the slow down is the precipitous fall in central assistance. The state's borrowing limit has been slashed by Rs 6,645 crore. Central assistance, he said, would come down by Rs 5,370 crore. The state's share of the centre's divisible pool is also expected to fall by Rs 5,623 crore. There will be a fall in non-tax revenue by over Rs 1,800 crore. Together, Isaac said there will be a shortfall of Rs 19,463 crore.

The minister said the GST growth was a disappointing 7 per cent. This he attributed to two reasons. One, excess input tax credit claims of traders. Two, widespread sales suppression. He said the traders get away with this because they still did not have to produce their annual returns. “We can cross-check input tax and sales claims only if we get the annual returns. Only then can we know how much one person has sold and the other has purchased,” Isaac said.

He said the Centre kept postponing the last date for filing annual returns. “It was supposed to be by the end of August but now it is December,” Isaac said. “My budget estimates were drawn up based on the thinking that the annual returns would have been available much earlier,” he said. Isaac said that under the GST regime the state could not barge into shops and do flash checks. “It is self-policing system now. But for even this to be effective, traders should regularly submit their annual returns,” the minister said.

Isaac cited the negative growth in motor vehicle sales tax as the sure shot sign of a recession. “Even the tax from petrol has gone below 10 per cent. What's more, even the revenue from liquor sales has gone under 10 per cent,” Isaac said.

Nonetheless, Isaac said a fall in motor vehicle sales would not affect the functioning of KIIFB. A share of the motor vehicle tax is one of KIIFB's assured sources of income. “Our model is highly conservative. We had calculated our repayment schedule like it is a non-revenue model and assuming a huge average interest rate of 9 per cent. But many of our projects, like Transgrid, are revenue generating. There is enough fiscal space for KIIFB,” Isaac said.

The minister also said that steps had been initiated to improve the efficiency of tax collection. One, the tax bureaucracy has been divided into two, one to deal exclusively with GST and the other for the collection of VAT arrears. Two, surveillance cameras and automatic readers would be installed at entry points to automatically check e-way bills. Three, Artificial Intelligence would be employed to improve tax compliance.

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