Kerala will need to work out radical changes in its fiscal policy in the troubled post-COVID-19 economic scenario to resolve the acute fiscal crisis that it faces and restore stability, according to a new book on the State’s economic development against the backdrop of the pandemic.
The changes should be directed at ramping up revenue, restricting non-priority, non-Plan revenue spending, limiting borrowings to manageable levels and achieving fiscal targets set by the Fiscal Responsibility Act, observes Kerala’s Economic Development: COVID-19 Pandemic, Economic Crisis and Public Policy, a collection of essays edited by B. A. Prakash, former chairman of the Kerala Public Expenditure Review Committee and the State Finance Commission, and Jerry Alwin, Associate Professor of Economics, SN College, Varkala.
The book, which has 21 essays by different authors on diverse Kerala-specific topics set against the backdrop of the pandemic, will be released in Thiruvananthapuram on Saturday.
Regaining its ‘‘lost fiscal capacity’‘ is perhaps the most important challenge that Kerala faces today, the book notes.
Persistent fiscal crisis
Reports of the Comptroller and Auditor General of India (CAG) and the June 2022 Reserve Bank of India article ‘State Finances: A Risk Analysis’ reveal that Kerala has been experiencing a persistent and acute fiscal crisis and is heading towards a fiscal collapse. ‘‘The CAG’s accounts at a glance (March 2022) show that Kerala has a revenue deficit of ₹26,582 crore and fiscal deficit of ₹42,785 crore. The State does not have the resources or the borrowing capacity to afford this huge increase in revenue expenditure. The above evidences suggest Kerala is heading towards a fiscal collapse and debt trap.’‘
The book, published by Pearson, warns that the effects of the pandemic-induced global recession could be prolonged and recovery slow.
Other factors
On other fronts, Kerala needs to learn from the food supply disruptions caused by the pandemic and the Ukraine war and focus on the growth of the primary sector and food production within its boundaries, it noted. ‘‘The economic slogan in the world prior to COVID-19 was, produce for the foreign markets from which we earn maximum profit, price and foreign exchange. This principle has less relevance for food items in the Post-COVID era,’‘ it said. Besides, policy initiatives in this direction are vital in the context of the floods, droughts and climate change-induced phenomena which affect food production and the supply chain.
Given the very real possibility of future pandemic outbreaks and health crises, the State should take up the strengthening of the health-care system as a top priority. Kerala’s farm sector would require policy measures to lift it out from the stagnation that it is in and ensure a stable and sustainable growth trajectory. It emphasises the need to select crops on the basis of agroclimatic conditions and promote agri-entrepreneurship and homestead farming.
