According to the Economic Review 2022 by the Kerala State Planning Board, tabled in the state Assembly on Thursday (February 2), the state economy is on the track of recovery. The economy was hit hard by natural disasters such as Cyclone Ockhi of 2017 and severe floods of 2018 and 2019, along with the COVID-19 pandemic since 2020.
The document claims that the recovery is primarily due to the COVID-19 relief policies of the state government along with subsequent supporting policies. The economic crisis in the Gulf countries and the resultant slowdown in the inflow of remittances had also impacted the state economy.
“Kerala’s economy posted a strong recovery in 2021-22. The growth rate of Gross State Domestic Product (GSDP) at constant (2011-12) prices increased from (-)8.43 per cent in 2020-21 to 12.01 per cent in 2021-22. This is the fastest growth since 2012-13. Indian economy grew by 8.7 per cent in 2021-22. The stimulus packages, along with other pro-active policy interventions of the state government, augmented growth, particularly at a time when economic activities were severely constrained,” read the document.
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The sectoral composition of GSDP reveals positive developments across sectors. Primary, secondary, and tertiary sectors grew by 4.16 per cent, 3.9 per cent, and 17.3 per cent, respectively, in 2021-22 over 2020-21. This was a very creditable record, particularly in the light of the fact that the sectors recorded negative growth in the preceding years.
Revenue deficit as a per cent of GSDP for 2021-22 was 2.29 as against 2.51 per cent in 2020-21. Similarly, Fiscal Deficit as a per cent of GSDP improved to 4.11 in 2021-22 from 4.57 per cent in 2020-21, claimed the State Planning Board.
The growth rate of the state’s own tax revenue in 2021-22 was 22.41 per cent. The high growth rate was mainly because of the growth in GST, sales tax, and VAT.
The state’s outstanding public debt at the end of 2021-22 was Rs 219,974.54 crore. The annual growth rate of public debt decreased to 10.16 per cent in 2021-22 from 14.34 per cent in 2020-21. The public debt-GSDP ratio decreased to 24.26 per cent in 2021-22 from 25.90 per cent in 2020-21. The total outstanding liabilities of the state were at 37 per cent in 2021-22, which were 37.13 per cent in 2020-21.
Series of setbacks
According to the review, Kerala’s efforts to improve its finances through the fiscal consolidation path have been jolted by a series of setbacks in realms beyond the state government’s control. The mobilisation of additional revenue and prioritizing expenditure assume significant importance in the way forward towards fiscal consolidation.
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The document said the Kerala government is committed to infrastructural development in the state and the share of the government spending on capital projects in various sectors has increased during recent years. The capital expenditure of the state in 2021-22 was Rs 17,046.02 crore, and in 2020-21, it was Rs 15,438.16 crore.
According to the review, the total number of job seekers as on July, 2022, was 28.4 lakh, while it was 34.9 lakh in December 31, 2015, according to the employment exchanges in the state. The review emphasised the fact that during the financial year 2021-22, PSUs under industries department reported a turnover of Rs 3892.14 crore, with an operating profit of Rs 386.03 crore, indicating an increase of 17.8 per cent compared to previous year.
Opposition white paper
In the run-up to the Budget session of the Assembly, the opposition Congress-led United Democratic Front (UDF) released a white paper on the financial crisis the state is currently experiencing. The Opposition accused the Left government of pushing the state into a “danger spot” with a total debt of 4 lakh crore, citing several financial indicators. VD Satheesan, Leader of the Opposition in the Assembly, alleged that the government had thoroughly mismanaged tax collection.
“The state’s tax collection has dropped significantly. The special-purpose vehicle Kerala Infrastructure Investment Funds Board (KIIFB) has proved to be a complete failure. They announced projects worth Rs 70,000 crore within five years, but only Rs 6,000 crore worth of projects were carried out in the last six years, he said.
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FM admits “unprecedented crisis”
On the other hand, Kerala Finance Minister KN Balagopal, while admitting that the state was facing an “unprecedented financial crisis,” attributed the situation to the alleged distorted financial policies of the Centre, the COVID-19 pandemic, and recurring natural disasters in the state.
“It is true that the state is facing an unprecedented financial crisis,” Balagopal went on record in the Assembly. “However, the reasons contributing to the crisis are beyond the control of the state…that is the fact,” he said. According to his statement made in the House, there is a deficit of Rs 6,716 crore in revenue allocated to the state from the Centre for 2022-23, compared to last year.
FM suggests strict financial discipline
A strict financial discipline by strengthening tax collection, avoiding unwanted expenses, and keeping it to the minimum was the way out suggested by the finance minister, which the Opposition is in no mood to take in face value, as they dub this crisis as the result of corruption, mismanagement, and extravagance of the LDF government.
But the finance minister maintained that the states have not been receiving the GST compensation since July last year.
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“Now, at the time of the 15th Finance Commission, we are getting only 1.92 per cent from the divisible pool. There is a very serious discrimination towards us. This also leads to financial crisis in the state. We are eligible for getting more share from the divisible pool,” Balagopal said in an interview given to a news agency.