Articles
Indo-Pacific Vistas for India-Japan Relationship & Cooperation
March 16, 2023
Indo-Pacific Vistas for India-Japan Relationship & Cooperation
March 20, 2023State of Kerala State Budget for 2023-24
The Kerala Budget for the year 2023-24 aims to “improve the standard of living of the people and create a sustainable and modern ‘Nava Kerala’ (New Kerala).” The state says that in the past year, more than one lakh new enterprises have been launched in Kerala. The state is also striving to achieve a higher economic growth rate in the current financial year.
Since the state has a large segment of elderly population, with aged 60 years and above comprising16.50% in 2021 and it is projected to increase to 20% by 2031. With this large aged population, ensuring social safety would be an enormous challenge given the constraints of state finance. It is predicted that very soon Kerala may become the highest dependency-population ratio state in the country. Most youth in Kerala either migrate to other states or immigrate to other countries either for education or for employment as the prospects for fulfilling their aspirations are limited within the state.
Kerala’s economy grew by 12.01% GSDP in 2021-2022. For the first time in recent history, the state agriculture-allied sector and industry-allied sector have achieved a growth rate of 6.7% and 17.3% respectively. Within the industrial sector, an impressive growth rate of 18.9% has been achieved in the manufacturing sector due to the low level of the base in the previous year.
Though there is a marginal increase in its own tax revenue but the exorbitant increase in the Kerala government’s committed expenditures like employee salary and pension liabilities pose serious threats to the state budget, leaving not much for the welfare of the state for long-term assets creation through capital expenditure. Capital expenditure allocation for 2023-24 is proposed to be INR 14,606 crore, a decrease of 2% over the revised estimate of 2022-23.
In 2020-21, INR 46,754 crore was incurred as expenditure for salary and pension benefits. It has further increased to INR 71,393 crore in 2021-22, which is an increase of INR 24,639 crores and an increase of 53%. As per actual expenditure, 81% of revenue receipts was spent towards committed expenditure in 2021-22, leaving only 19% of funds for development projects/schemes. Further, Kerala’s committed expenditure is expected to increase by 5% over the revised estimate of 2022-23. In 2023-24, Kerala is estimated to spend INR 94,649 crore on committed expenditure, which is 70% of its estimated revenue receipts. This comprises spending on salaries (30% of revenue receipts), pension (21%), and interest payments (19%). According to RBI Report (2022), Kerala state is one of the highest debt burdens based on the debt-GSDP ratio in 2020-21. It is one of the top 10 states with fiscal vulnerability in the country.
The growing revenue deficit would be worrisome for the state economy. Kerala’s revenue deficit is estimated to be 2.1% of GSDP (INR 23,942 crore) in 2023-24, marginally higher than the revised estimates of 2% of GSDP for 2022-23. Though, the revenue deficit is expected to be lower than the budget estimate with 2.3% of GSDP in 2022-23. The fiscal deficit for 2023-24 is targeted at 3.5% of GSDP (INR 39,662 crore), which is the highest limit prescribed by the Union Government for states. In 2022-23, as per the revised estimates, the fiscal deficit is expected to be 3.6% of GSDP, marginally lower than the budget estimate of 3.9% of GSDP.
Kerala Budget 2023-24 announced to increase in revenue augmentation in stamp duties, electricity duty, and taxes on vehicles will all be increased. Property tax and royalty on minor minerals will also be revised for revenue augmentation to bridge the shortfall of revenues. A Social Security Cess of INR 2 per litre will be charged on liquor, petrol, and diesel to generate revenue of INR 1,150 crore and will be used for the Social Security Seed Fund.
The Kerala budget has also announced a few interesting initiatives like Life Science Park and 3 Digital Sciences Parks, which will be a major boost to the state with an investment of INR1000 crores for the promotion of higher education.
While one could see the State Budget largely blames the Union Government for various aspects like low state share of tax, etc., Kerala’s budget for 2023-24 has actually been inspired by the Government of India’s Make in India announcement of “Make in Kerala” through which the state aims “to increase domestic production, employment/entrepreneur/investment opportunities in Kerala”. The Budget also announced sponsoring 100 research students for short-term fellowship projects in international universities across the globe.
To implement ‘Make in Kerala’, the state has done a scientific study to find ways to pursue it. A study by the Centre for Development Studies found that “Kerala imported products worth around INR1,28,000 crore in 2021-2022. Out of this, 92% was from other states. During this period, the state’s exports were around INR74,000 crore. Out of this, 70% was to other states. From this, it has to be understood that the trade deficit of Kerala is very high. In this context, the study aims to find out the imported products which can be produced locally.”
However, the state should take cautious steps and promote the production of goods within the state through ‘Make in Kerala’ only if the state has comparative advantages on essential resources over other states, both in terms of cost of production and its capability to scale up. Otherwise, it would not able to mark any difference even if the specific profitable products are promising in a short-term period. Institutional structure and means of financing large investments from the private sector are weak in the state. There is a poor nexus among factors of production across different sectors in the Kerala economy.
Though, it is quite interesting that the state has mentioned in its budget that “there has been a huge boom in the infrastructure development sector in Kerala. Construction activities for a length of 1931 km worth around INR 1,33,000 crore including National Highway 66 and other National Highways are progressing at various stages.”
The urban population of Kerala is about 70% but the civic facilities and services have barely improved over the years. There are 6 city corporations in the state. Urban mobility is a major issue in the state. The budget provision of INR1,055.31 crore given for Urban Development Programmes in the State is not sufficient to ensure various essential services and facilities for citizens.
In 2023-24, total transfers to local governments are estimated at INR 14,149 crore, an increase of 25.4% over the revised estimates for 2022-23. This is inclusive of the grant of INR 2,496 crore from the Union Government for local bodies as per the 15th Finance Commission recommendations.
Kerala announced to set up of a commission to formulate a new policy for urbanisation under the scheme of “Nava Kerala Nagara Nayam”. Kerala is the pioneer in decentralised management of local bodies both in urban and rural spaces which are witnessing a second generation of reforms. This is something that Tamil Nadu can learn and adapt to empower local government for better services and facilities for what citizens pay by way of taxes.
Views expressed by the author are personal and need not reflect or represent the views of the Centre for Public Policy Research.
Chandrasekaran Balakrishnan is Research Fellow (Urban Eco-system and Skill Development) with CPPR. His areas of research interest are economics of education, vocational education and skills development, economic reforms, liberal vision for India, water management, regional development, and city development. Chandrasekaran has an MA in Economics (University of Madras) and an MPhil in Social Sciences (Devi Ahilya Vishwavidyalaya University, Indore).
