CSES in Media

Kerala Budget: A Commendable Efforts in Adverse Times

Dr. N. Ajith Kumar (Director, CSES)

This analysis on Kerala Budget was published in The Times of India on 01.02.2019

This is the first budget that was presented after floods had affected all sectors of Kerala economy in 2018. The state is yet to recover from the adverse impact of demonetisation and GST. The number of return emigrants is increasing and remittances from abroad is showing a declining trend. While the request for additional cess was granted by the GST Council, Centre denied permission to increase the borrowing limit. The challenge is to rebuild Kerala in adverse times even while not making major cuts in other sectors. It appears that finance minister has attempted to address the issue earnestly even while trying to contain fiscal deficit.

The state was not able to ned the expected GST last fiscal year due to many factors and this affected its revenue. Despite that, the budget tries to reduce the revenue deficit from 1.68% in the current year to 1% in 2019-20. In 2018-19, 56.3% of the loan was spent on revenue expenditure. This year’s budget is trying to reduce it to 33.4% in 2019-20, which needs to be appreciated. This can be a structural change that can boost GDP growth.

The efforts to increase environment-friendly initiatives need to be lauded. Canal renovation in Kuttanad, subsidy for waste treatment plants, funds for sewage treatment facilities are some of them. Green initiatives such as extending rebate on road tax to electric vehicles and changing KSRTC vehicles in Thiruvananthapuram to electric ones are notable.

Increased attention on solar energy, use of energy-efficient electrical equipment needs to be appreciated. The revision of luxury tax for residential buildings with a plinth area above 3,000 sq ft can be viewed as green initiative. But, the quantum of tax levied is too low, which could have been doubled given the adverse impact of such constructions in Kerala.

There have been some serious efforts for value addition in agri sector whether it is coffee, rubber, paddy or coconut. In 2018-19, there has been an increase in growth rate of agriculture and allied activities. The initiatives announced in budget are likely to improve this trend.

A major boost is planned for startups. It is known that Kerala can attract enterprises only with human resources, availability of better facilities, support systems and better governance. Attracting industries through financial incentives and low-wage labour is not desirable. The budget has not tried this option.

Instead, it focuses on getting dividends from investments the state had made in education and social sectors. As the economic review report (2018) said, the performance of PSUs is showing an improvement. Half of them made profits last year as against one-fifth a few years ago. There is net profit from PSUs together. This is a welcome sign.

KIIFB will continue to finance major road improvements. Improved use of technology and designer roads envisaged in the budget are likely to increase durability.

The budget has increased allocation for persons with disabilities. Given the fact that Kerala has just started implementing the Rights of Persons with Disabilities Act 2016, there needs to be a quantum jump in allocation to protect the rights of such persons. Given the commitments under the new Act which has brought in newer categories of disabilities, more programmes need to be started. The fund allocation for barrier-free Kerala is inadequate given the magnitude of the task.

The proposal to introduce collection of entertainment tax is a welcome step. In GST era, local bodies lost a major source of revenue. The present proposal will help to increase own revenue of local bodies.