In normal times, the new finance minister would have found himself far less a pauper than T M Thomas Isaac when he took over in 2016. The Treasury now has a cash balance of Rs 3,000 crore. Back when Isaac assumed charge in 2016, Kerala's coffers had less than nothing, it had a negative cash balance of Rs 173.46 crore.
But to the new finance minister, even this seemingly healthy balance of Rs 3,000 crore, would feel far worse than the Treasury deficit that Isaac had inherited. COVID-19, far more efficiently than inflation, has devalued money. Now, nothing seems enough.
Isaac didn't have to buy vaccines at unheard of costs, he didn't have to worry about ICU beds, ventilators or oxygen cylinders, didn't have to think of cash transfers other than the monthly social security pensions to 48.6 lakh beneficiaries and, at least till his last year, didn't have to think of providing food kits free for even the rich.
The new finance minister will have to. He will have to adjust his 'revised' budget to COVID-19 requirements.
How COVID-19 undermined Isaaconomics
Danger is, as Kerala's virus-fuelled needs are multiplying, her resources are dwindling in quite an alarming fashion. When Isaac took over from K M Mani, there was at least some annual growth in tax collection, even if it was as low as 10-11 per cent.
But in the last fiscal under Isaac's watch, when COVID-19 swept through Kerala, tax collections did not even stagnate, it contracted by over 10 per cent, something that had never happened before. From Rs 50,323 crore in 2019-20, the state's own tax revenues fell to 45,272.12 crore.
Growth in non-tax revenues, which includes lottery sales, fell by over 25 per cent during this period; from Rs 12,265.22 crore in 2019-20 to Rs 9121.27 crore in 2020-21. With the second wave looking even more monstrous, the fiscal situation could either remain stuck in this danger zone or deteriorate even further.
In this sense, the new finance minister will find the start considerably more difficult than Isaac's. However, the new finance minister can spot some shining aspects in the ledger book that he would be given.
One is the increased borrowing limit that the 15th Finance Commission has rewarded states. Till now, states could borrow only three per cent of the state gross domestic product, which was considered highly inadequate. Right from the word go Isaac had been fighting a bitter battle with the Centre to get the limit enhanced by at least two per cent.
Last fiscal, as an extraordinary one-time measure during COVID-19 times, the Centre had pushed up the borrowing limit by two per cent. Now, the 15th FC has made it four per cent. Meaning, the new finance minister could borrow an additional Rs 8,700-odd crore this fiscal.
The other favourable factor is a Rs 4,522 crore loan Isaac had saved for the new government. This is part of a special borrowing plan a cash-starved Centre had devised for states. The Centre, which has to provide GST compensation to states, has not been able to do so. To make up, the Centre had asked states to borrow from banks through a special borrowing window.
Kerala had already borrowed some money but an additional entitlement of Rs 4,522 crore the Centre had allowed Kerala through the same route had been deferred and kept as reserve for the new government.
Start with a clean slate
There is yet another favour Isaac has done his successor. He has not left him any immediate liabilities. When Isaac came in, the immediate and medium-term liabilities he was saddled with was more than Rs 10,000 crore.
Immediate liabilities, it was then reckoned, was Rs 6302 crore, which includes money that has to be paid to pensioners, to contractors, for land acquisition, and also the money taken from welfare boards.
Find money for vaccines
Nonetheless, with the pandemic worsening, the new finance minister will have to reprioritise the state's expenditure. Most important of all, he will have to set aside at least Rs 1500 crore for the purchase of COVID-19 vaccines.
He would perhaps limit the free provision kits to white card holders after Onam season but, if the pandemic pulls Kerala down even further as is now being predicted, the new finance minister will have to think of direct cash transfers to support victims of recession.
More interest free loans, like the Rs 2000-crore scheme announced during the pandemic last year, will have to be offered to shore up jobs and businesses.
Isaac, perhaps hoping that Kerala had left the worst behind, has not set apart any money for such eventualities in his last budget. "There is only so much that the new finance minister can do by re-prioritising the funds. He will also have to find new sources of income," said Jose Sebastian, tax expert.
There's no luck in lotteries
Economists like Sebastian and B A Prakash, former chairman of Kerala Public Expenditure Review Committee, had been constantly exhorting Isaac to find new sources of income. "Property tax has not been touched for 20 years even though the law says it should be revised every five years," Prakash said.
Jose Sebastian wants medical education fees and other user fees increased. "Without finding new sources of income, there is no way out for Kerala," Sebastian said.
Lottery, Kerala's biggest source of non-tax revenue, has lost its lucky charm post pandemic. Last fiscal, Isaac expected Rs 11,569.70 crore from the sale of these lucky strips. In the end, he could mop up just 6647.76 crore, a drop of nearly 45 per cent in revenue. "In these times when money is hard to come by it will be foolish to expect people to spend the little they earn on lotteries," Jose Sebastian said.
The new finance minister, in short, will have to try his luck beyond lotteries. In his last budget, perhaps because it was just before an election, Isaac had shied away from announcing any new resource mobilisation measures. It was a pittance he had hoped to mobilise by way of additional resources: Rs 200 crore. The new finance minister will have to do much more.