This report was published in The Times of India on 02/02/2020
For Kerala, the Union Budget for FY21 is a dampener – glaringly, it didn’t get any notable project that is of specific benefit to the state or its people. However, there is a more disturbing aspect that is going to undermine the state’s own capital and revenue expenditures that fund developmental activities as well as usual administrative works and it is the decline of Kerala’s share of the tax revenue from the central government from Rs 17,872 crore in FY20 to Rs 15,236 crore in FY21.
A cocktail of reasons is behind Kerala’s dwindling tax share from the Union government – political as well as Finance Commission’s Terms of Reference (ToR) change and also Kerala’s achievement in social sector reforms.
Economists and policy wonks had only noticed this decline in Kerala’s share of ‘divisible pool’, the central government’s revenue from income tax and corporation tax, triggered by a change in the ToR used by the Finance Commission, an autonomous and constitutional body that works as an arbitrator between the Centre and states regarding sharing the revenue.
“The change in ToR has caused a decline in Kerala’s share of divisible pool,” said D Narayana, former director, Gulati Institute of Finance and Taxation. According to him, till the 12th Finance Commission, the share of each state was decided based on the population figures of 1971 and from the latest 14th Financial Commission, it is based on 2011 figures.
Between 1971 and 2011, the population of north Indian States like UP, Rajasthan, Bihar and Madhya Pradesh grew significantly while that of Kerala was almost stable. As the population share of northern states were high, they are getting more allocation. As a result, Kerala’s share of divisible pool came down from 2.5% last year to 1.93% this year.
According to K K Krishnakumar, fellow, Centre for Socio-Economic & Environmental Studies, Kochi, apart from the ToR change, there is another reason that is hurting the flow of resources from the Centre. “Kerala’s share of resources from almost all the flagship projects of the central government are relatively low compared to the northern states, because the state had already
achieved considerable levels of development, especially in education and healthcare,” he said.
“Take the case of Samagra Shiksha, which funds opening new schools, where Kerala received only Rs 206 crore in FY19, instead of the original indicative allocation of Rs 413 crore. While Kerala’s actual allocation was only 49.84% of the indicative one, Tamil Nadu received 100%, Madhya Pradesh 103%, Odisha 105% and Bihar 106%,” Krishnakumar said.
“We have been penalised for our own advancement in social sector. We had been facing this issue since the 1990s,” he said.
Except for the employment guarantee programme MNREGS, Kerala’s share in all other flagship schemes like Samagra Shiksha, National Health Mission, PMGSY and Social Security Pension, is low, Krishnakumar said. High population density, land cost and environmental awareness are other factors that hinder allocation of flagship infrastructure projects in Kerala, he said. Bringing down
the width of NHs from 60 metres to 45 is an example.