When finance ministers bluff less, it is a sign that the economy is back on track.
In complete contrast to his first Budget speech, finance minister K N Balagopal has put out highly probable and believable figures of revenue receipts on March 11. A demonstration of the minister's confidence in the economy.
Last June, when he made his first Budget speech, the pandemic had made a mess of the economy and Balagopal lied big time to cover up the mess. He made the outrageous claim that the state's own tax revenue would grow by nearly 60% in 2021-22. It did not matter to him that COVID was in full force and that the highest growth in taxes ever achieved in Kerala was 26%, and that too more than a decade before.
From Rs 45,272.15 crore in 2020-21, Balagopal said the tax receipts will burgeon to Rs 71,833.28 crore. This big fat boast kept the revenue deficit at 1.93% of the GSDP. At least on paper, a big relief. He was hailed for his fiscal consolidation instincts even while spending so much to keep the economy ticking during the pandemic. His predecessor Thomas Isaac, too, had put up ridiculously bloated figures when the economy was doing badly in 2019-20 and 2020-21.
Now we know that Balagopal will end up collecting just Rs 58,867.89 crore in place of the Rs 71,833.28 crore had promised. And the revenue deficit will be 2.57% and not the 1.93% that made the new finance minister seem a financial wizard.
This time Balagopal is more realistic. He has estimated only a 25% increase in the state's own tax revenue during 2022-23 fiscal. It has been more than a decade since tax growth touched 25% in Kerala. Still, Balagopal's latest Budget estimate looks probable.
During the ongoing 2021-22 fiscal, Kerala's tax receipts have achieved a miraculously robust growth: 23.5%. What could be a better indicator of economic revival than a sudden and dramatic spurt in tax revenue after two consecutive terms (2019-20 and 2020-21) of negative tax growth.
This is also why Balagopal was not too keen on mobilising a huge amount from new taxes or hikes. The additional resource mobilisation in this Budget is just Rs 602 crore.
There is more money in the coffers but Balagopal still has to keep the expenditure in check to achieve the below 4% fiscal deficit he has targeted. And this he would do by the simple expedient that most finance ministers resort to: curtail capital spending without seeming to do so.
Balagopal's Budget speech is filled with grand and ambitious projects: Centre of Excellence of Microbiomes, Innovation Centre for Graphene, airstrip network, K-Rail, IT parks, Translational Research Centres, international hostels and Knowledge Economy Mission. But all of these are either provided just token namesake provisions in the Budget or are funded through KIIFB, which is outside the Budget.
In other words, though the minister had talked big about capital expenditure, he has allocated relatively little. Take for instance, the capital expenditure on general services, mostly public works like roads, highways and bridges. The amount budgeted for 2022-23 is Rs 223.91 crore, which is far lower than the Rs 259.54 crore spent even in 2020-21.
The social service spending (on education, health, water supply and sanitation) has also been tightened. This account, which on average grows 20-25% a year, is budgeted to increase just 7% in 2022-23.
It looks like Balagopal has found in the post-COVID revival an opportunity to balance Kerala's wayward finances. An economy returning to full life will provide him with a windfall. But the miser's instinct has taken over and he wants to slyly keep his spending in check till Kerala's mounting debts are manageable.
Such a conservative strategy of consolidation is similar to a fish that glides underneath a boat. The fish might seem peaceful and unobtrusive but it could overturn the boat with a last-minute flick of its tail.
Similarly, low capital spending could give a sense of prudent fiscal management until it kills demand and slashes Kerala's newfound growth wings.
