Kerala’s bet for growth: If not now, when?

Finance Minister K.N Balagopal
Kerala Finance Minister K N Balagopal

Even as its social indicators of development remain comparable to some of the advanced economies, Kerala has been grappling, of late, with the vicious cycle of lack of growth, resultant low revenues, a high debt level and burgeoning expenses on interest payments, salaries and pension of Government/quasi-Government employees.

Therefore, Finance Minister K.N Balagopal has a tough job on hand as he gets ready to present his first full-fledged budget on Friday. Not the least of his worries would be to spur growth and impart dynamism to a weary economy which is caught amidst a weak primary sector, a sputtering manufacturing segment and a Covid-hit tertiary sector.

The expectation that the GST regime would prove beneficial to the State’s revenue stream as it is a destination for consumption has been belied and unless Kerala grows out of its low-growth/high-debt trap quickly, the coming years will be even more difficult to navigate.

It is here that the development theme articulated by Chief Minister Pinarayi Vijayan becomes relevant. Better than anybody else he realises that the traditional approach of the apparatchik will not work and what he has recently been talking about is a type of “socialism with Kerala characteristics”, if one may call it so.

The shibboleths of militant trade unionism which has time and again deterred entrepreneurs from big investments in the State have to be shed if Kerala has to attract private capital. While that may not happen in the immediate future, signals for a “New Kerala” have already been flagged by the Chief Minister at his party’s recent State Conference in Kochi last week.

What can Balagopal do to fulfill growth objectives? The Union budget is a good pointer in this regard. He has to focus on spending for infrastructure, particularly in the rural areas. It appears that KIFFB (a separate extra-budgetary fund for infra investment in the State) has more or less peaked in its capacity to leverage for projects and the new investments have to be necessarily provided for in the budget itself.

The capital expenditure has to be targeted at a level of at least Rs 15,000 crore for 22-23. This figure has been languishing around Rs 10,000 crores in the last three years and though Rs 12,589 crore was budgeted for 21-22 but it is doubtful whether the amount spent would be anywhere near this. After all, the Finance Minister can only provide but if implementation lacks pace, then the best of budgets go awry.

For instance, data from NABARD prove that the RIDF (Rural Infrastructure Development Fund) utilisation itself is on a low-key in Kerala whereas States like Telengana, Andhra Pradesh or even Odissa (comparable to us in size) manage to avail and spend more. These rupee loans are available at an interest rate of 2.75% per annum now but time-bound implementation of projects is strictly monitored. There are 37 different types of expenditure for which this is allowed. Even out of about Rs 11,000 crores sanctioned so far for Kerala (lower than comparable States, as it is based on applications for loans), the utilisation has been only about Rs 8,000 crore.

For major irrigation projects too, the amount sanctioned for Kerala is just Rs 48 crore out of a total of Rs 32,588 crores for all States under NABARD-sponsored schemes. This is not the result of one Government’s performance but the cumulative result of years of neglect of development and core investments.

It is well known that caped generates growth and employment with a growth multiplier of 2.5/3 whereas revenue expenditure begets only output equivalent to the amount spent.

Second is the issue of internal revenue generation and mobilisation. Though the scope is limited, there is need to tighten the loose ends and go for resources on “an ability to pay” basis. The State has for long been practising a system of welfare for all ( near-free Medicare and education in Government institutions for all) without matching internal income generation. The Finance Minister has to make a beginning in reversing this trend by increasing taxes/duties wherever feasible and making people who can afford to pay, pay.

Third is a forward looking policy for the MSME/start-up/Digital ecosystem, which has been attracting interest in recent times. The State has an advantage in these segments which needs to be given a leg-up through further incentives.

Fourth but not definitely in that order of importance is the agriculture and allied activities including fisheries and food processing sector where the State can definitely make a mark with the right kind of policy support. There is renewed interest here but Agriculture has been recording negative growth in the State even as the country has achieved growth of 4/5% in the last three years.

For doing all these, if the State has to borrow so be it. Debt by itself is not a problem. If debt can push growth, never fight shy of adding to debt.

The Finance Minister will have the full backing of the CM for a break with the past. A no non-sense administrator, the CM has talked less of ideology and more about development. K N Balagopal should capitalise on the Deng Xiaoping-style and strategy of Pinarayi Vijayan.

(S Adikesavan is a top executive with a bank. Views are personal)

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