Last Friday, the Kerala legislative assembly passed a unanimous resolution that accused the Union government of destroying the federal structure of the country by financially strangulating the states. State Finance Minister K.N. Balagopal presented that resolution, which was passed unanimously in the Kerala assembly. As Kerala government is going through a major financial crunch, Balagopal made it a point to criticise the Union government in his budget speech, too. “Kerala cannot remain a mute spectator against the hostile approach of the Central government which is pushing the state towards the worst financial crisis in its history. Instead, we should strive forward with the strong sentiment of “Thakarilla Keralam, Thalarilla Keralam, Thakarkkanavilla Keralathe (‘Kerala will not be shattered, Kerala will not tire, Kerala cannot bedestroyed’),” he announced before entering into the heart of his fourth budget in the Kerala assembly.
Given Kerala's challenging economic situation, there was heightened interest in resource mobilisation strategies the finance minister might unveil in his budget. As the Lok Sabha elections are near, there has been speculation that Balagopal will not commit to highly adventurous—like the additional cess that he slapped on fuel and liquor in the last budget—measures. But at the same time, he was required to be imaginative on resource mobilisation measures in order to deal with the severe financial crunch.
“Given the constraints within which the state government has been operating, the government has introduced modest measures of (resource mobilisation),” said K.J. Joseph, director of Gulati Institute of Finance and Taxation, an autonomous institution supported by Kerala government. The economist added that the finance minister ensured not to give any big shock to the people.
Thoughtful measures?
The finance minister announced in his budget that programmes are being planned to attract investment to the tune of at least Rs. 3 lakh crore within the next three years. He went on to add that “instead of waiting for justice from the Central government, the state government will utilize all its resources to raise capital investments from private and public sectors,” to ensure the implementation of all its programmes.
In the resource mobilisation front, Balagopal announced some focused measures in electricity duty, judicial court fee, motor vehicle department, excise, registration, land revenue, and scrapping policy, to ensure some additional money in the coffers. “From 1963 onwards electricity duty is collected at the rate of 1.2 paise per unit for consumers who generate and consume energy for their own consumption. The rate is enhanced to 15 paise per unit. An additional revenue of 24 crore is expected. From 1963 onwards, electricity duty for the sale of electricity is being levied at the rate of 6 paise per unit. This is enhanced to 10 paise per unit. An additional Revenue of Rs.101.41 crore is expected,” he announced as his first measure of resource mobilisation.
Senior economists like Mary George are not particularly impressed by this decision. However, this former Member of Public Expenditure Review Committee of Kerala, wholeheartedly supported the measures not to slap any additional tax on petrol as well as the measures to tighten the rules in registration and land revenue.
The budget has measures intended to prevent irregularities such as the transfer of mortgaged property, remortgaging by concealing mortgage information, and withholding of title deeds from the owner by financial institutions even after the mortgage matures. These kinds of issues arise because agreements relating to equitable mortgages—where title deeds are deposited as security for credit—are at present not recorded in the registration and revenue records by financial institutions except co-operative banks. The minister announced that steps are underway to introduce a state amendment to the Registration Act, 1908, to deal with these issues. The government has also announced steps to update the stamp duty levied on lease deeds by amending the Kerala Stamp Act. Balagopal is expecting an additional revenue of Rs 40 crore from this measure.
The finance minister has declared measures to prevent stamp duty evasion done by not accurately reflecting the true value of buildings in the documents, and is expecting to earn an additional revenue of Rs 100 crore. There has also been an announcement of a revision of the fair value of lands.
George said there exists a mafia in the state that involves land buyers, writers/scribes and registration officers which loot massive money that should come to the government’s treasury. “There is massive corruption in registration offices. It will be hard to bring some discipline to these places. But if the government shows determination, it can bring a lot of changes,” she added.
Currently, the Kerala government owes approximately Rs14,000 crore in arrears under various pre-GST tax laws. The government announced an ‘Amnesty 2024’ Tax Arrears Resolution Scheme to recover this amount. “This scheme will not only provide relief to taxpayers but also enable the GST department to undertake new activities that will boost tax collection,” said the finance minister during the budget speech. The government has announced another amnesty scheme for individuals and institutions who defaulted on the payment of lease rent due to the government for land leased. The government will also allow river sand extraction from Bharathapuzha, Chaliyar and Kadalundi rivers and is planning to earn an additional income of Rs. 200 crore.
George, however, noted that the government has not really thought of innovative ideas to increase the state's own non-tax revenue. According to the economic review 2023 of the state, lotteries constitute 78.67 per cent of the total non-tax revenue of the state. “There are around 36 major ways in which the state government can increase non-tax revenues; lotteries are just one of them. But the government is yet to implement a solid idea to reduce the share of lotteries in states' own non-tax revenue,” she said.
Ironies in play
Balagopal opened his speech saying that Kerala is on the cusp of becoming a ‘sunrise’ economy. Sunrise industries are new or relatively new industries that have the potential for rapid growth and are expected to become important in the future. Kerala Industrial Policy 2023 has put a big focus on high-priority industries in the “sunrise” category. In the budget speech of Balagopal too, this focus has been visible. The minister clearly stated that a joint focus on both infrastructure development and the knowledge economy would eventually result in growth in sunrise industries. Apparently, a slew of targeted plan funds have been announced in the budget.
However, opposition leader V.D. Satheeshan criticised the budget speech saying the budget lacks touch with reality. “In this financial year, just one-and-a-half-month is left and so far the government has spent 55 per cent of planned expenditure. If this is the case, then what is the reliability of plan allocation!” he asked. “In the last budget, the Life Mission project had been allocated Rs717 crore, however only 3.76 per cent of it was allowed.”
Notably, the Pinarayi Viajayan government announced that opportunities for establishing foreign university campuses will be examined in accordance with the new UGC guidelines. Ironically, last year, the CPI(M) politburo had issued a statement saying the party strongly opposes the move of the UGC to facilitate foreign universities and educational institutions to set up campuses in India allowing them autonomy in determining fees and recruitment of teachers after a 90-day approval process. “This will lead to creating enclaves of high fees, elitist institutions which will further distort the structure of higher education in the country,” said the politburo statement on January 7, 2023.
The budget relies heavily on the belief that the government will be able to attract massive private investments in multiple domains. “Programmes are being planned to attract investment to the tune of at least Rs. 3 lakh crore within the next three years,” said the minister in his budget speech, while announcing that the state is looking at “out-of-the-box project implementation models that promote efficiency and innovation”, along with strengthening existing models. The finance minister announced that the state government will promote new generation investment models like public-private partnerships, joint ventures, CIAL model companies, Infrastructure Investment Trust (InvIT), Real Estate Investment Trusts (REIT) and Hybrid Annuity Model (HAM).
The government has also announced plans to make its branding programme, Keraleeyam, an annual event. “The propaganda that Kerala was a land of extreme labour struggles was strong at one time. Studies on labour strikes and the loss of man-days thereon have proved this smear campaign wrong… The aim is to honestly present the achievements of Kerala. Along with this, Keraleeyam will also discuss the ways to move forward as we overcome our shortcomings,” said the minister in the budget speech.
George, however, pointed out that events like Keraleeyam, which depend on sponsorship, have the potential to do some damage to the state coffers, too. “If the government itself is going to collect sponsorship from those who have to pay taxes, will they pay taxes? The money they are paying as sponsorship will be collected back by them by evading paying taxes. This sort of politics is being exemplified in events like Keraleeyam,” she noted.
A promise to review the contributory pension scheme has been part of CPI(M) poll promises. In the budget speech, Balagopal announced that in order to address the “insecurity” created by the NPS, a three-member committee has been constituted to further examine the report of the committee appointed by the government to study its revision. “The government is planning to review the NPS and implement a revised scheme that will provide security to the employees,” read the budget speech.
The opposition, however, mocked this move of the state government. “Their promise was that they will withdraw the contributory pension scheme. And they had set up a committee to study it. Now, they have announced another committee to study the previous committee's report,” said Satheeshan.
Disappointments and despair
The opposition alleges that the budget forgot to consider the issues of the poor and the farmers. There have been expectations that the government may increase the support price for rubber to Rs 250. However, Balagopal raised the support price by just Rs 10 from Rs 170 per kg to Rs180 per kg.
“Kerala is the only government which is intervening to resolve the crisis faced by rubber farmers. The Centre is adopting a policy that favors the large-scale rubber industry by promoting increased imports, as evidenced by the judgment passed by the Competition Commission against tyre companies. Although a request has been made to the Central government to increase this amount to Rs 250, there has been no positive response so far,” said the minister in his budget speech. The disappointment of the rubber farmers may have an impact in the upcoming Lok Sabha elections in regions like Kottayam.
Kerala Congress leader Monce Joseph alleged that the budget would destroy the farming sector in the state. On the matter of welfare pension schemes also, the finance minister had an unenthusiastic announcement. The social security pension is provided to approximately 62 lakh people in the state, and government assistance has been stalled for the last five months. There have been speculations that the minister may announce some increase in social security pension. However, he chose not to do that. Instead, he blamed the Central government for the troubles in disbursement of pensions. “While the government strives to ensure the proper disbursement of social security pensions, delays have occurred due to certain measures implemented by the central government,” he said.
“The Kerala Social Security Pension Company Limited, established to facilitate pension distribution, has accumulated Rs 35,000 crore, out of which Rs 24,000 crore has already been repaid. However, the central government's restrictions on mobilizing funds through the pension company create obstacles, because the new policy of the Union government defines the fund mobilized by KSSPL as public debt, causing difficulties in pension disbursement. Moreover, the Central government provides only nominal assistance for social security pensions, and even that is not disbursed on time.”
The finance minister promised to take “special measures” to ensure “timely and accurate” payment of social Security pension in the next financial year. However, it is yet to be known what those “special measures” are.
