It is a tightrope walk

In his last budget, the finance minister had cautioned us that the Ockhi disaster was a warning. He started 2018 budget speech by drawing attention to the disasters that global climate change can cause.

“We must take all precautions for meeting these,” he had said while presenting his budget, one that hoped to carry forward Kerala’s development agenda. His worst fears came true when a major flood destroyed life and property and caused untold miseries to people. It is ironic that the natural calamities that he feared have set the backdrop for his budgetary exercise in 2019-20.

Even in a difficult year of record rainfall and major floods, the state’s economy has seen a marginally higher growth rate over the previous year. But the recession and the widespread damage caused by the

floods

have affected the revenue growth in the economy. There are also leakages in the GST collections, as explained by the FM.

Though the revenue growth was not as expected, the FM has announced that there would be a major increase in expenditure (13.88% growth) to infuse dynamism into the economic growth process and to rebuild the flood-ravaged state.

To understand the crux of this strategy it is important to note a couple of observations made by the FM towards the end of his speech - that the capital expenditure as a percentage of total expenditure was increasing and that lesser loan is utilized for revenue expenditure. In the current year, the state will see a high level of expenditure for the rebuild Kerala programme.

A substantial portion of the chief minister’s disaster relief fund, the higher allocation to the panchayats in the flood-affected areas and other resources will be spent this year. Higher spending by the special purpose vehicle KIIFB for the investment project will also start in a big way this year.

However, the budget envisages that the GST will see a quantum leap in the budget year. The growth rate envisaged by the budget this year is around 30% from 10 % last year. The FM hopes to achieve this through better tax administration and by taking steps to prevent the leakages in revenue. Collection of tax arrears through one-time settlement of cases is the other strategy that would be employed to raise revenue. If these measures succeed the budget can hope to achieve its revenue targets.

(The writer is a senior journalist and was formerly with The Economic Times)