Leading economists have highlighted the need to mobilise additional resources by improving the efficiency of tax collection, controlling expenditure and recovering tax arrears to pull Kerala out of the present financial predicament in a structured manner.
The suggestions came at a seminar on ‘State of state finances’ organised by the Kerala Economic Association (KEA) and Gulati Institute of Finance and Taxation (GIFT) on Friday in the run-up to the budget 2024-25.
Presenting a paper on ‘Crisis in Kerala’s Public Finance: Some remedial measures,’ K.P. Kannan, Honorary Fellow, Centre for Development Studies (CDS), recommended a set of short-term measures for mobilising additional revenues.
By increasing own tax revenue-GSDP ratio by 1%, the non-tax revenue-GSDP ratio by 0.3%, and strengthening the collection of tax arrears every year for three years, it is possible to mobilise ₹20,446 crore as additional revenue in 2024-25 and ₹57,821 crore by 2026-27, he noted.
“You can keep on complaining about Centre-State financial relations, and do nothing. Or you can take it as a binding constraint and see what you can do to put your own house in order. If you are able to perform better, your credibility when criticising Centre-State relations will be that much higher,” Prof. Kannan said.
Former State Finance Commission chairman B. A. Prakash observed that the fiscal crisis has assumed the proportions of a “total collapse.” “In this context, I think there is no other option but to resort to expenditure cuts,” he said. “This unusual situation warrants unusual or hard measures,” Prof. Prakash said. He called for measures to slash revenue deficit and gross fiscal deficit, limit annual borrowing and revenue expenditure and implement salary revision once every ten years instead of five.
Former Finance Minister T. M. Thomas Isaac said politically-motivated attempts were on to upset the State’s economic model. He called for a united stand against the Centre’s approach.
GIFT director K. J. Joseph urged the State to explore its untapped tax and non-tax revenue potential. Dr. Joseph observed that post-COVID-19, Kerala recorded one of the highest growth rates in own tax revenues among the States, while displaying strong signs of fiscal consolidation.
However, this period also coincided with the highest decline in grants-in-aid from the Centre and negligible growth in Central taxes. Given the shift in fiscal federal relations from “cooperative federalism” to “coercive federalism,” there is an urgent need to bring together other States to ensure a paradigm shift in Centre-State relations, Dr. Joseph said. KEA president K. N. Harilal moderated the session.
