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High time Kerala looked beyond remittance income, says study

DC | R. Ayyappan | November 04, 2013, 13.11 pm IST
Picture for representational purpose only.
Picture for representational purpose only.

Thiruvananthapuram: A study on state revenues commissioned by the State Planning Board has said that the state should stop relying on remittance income and look for other reliable sources to finance its expenditure.

“It is evident from the developments in the past few months such as the ‘Nitaqat’ that Kerala can no longer thrive on the remittances that it has been receiving for decades,” noted the study titled ‘Tapping Potential Sources of Revenue for the State of Kerala’. “The remedy to the deteriorating fiscal health of Kerala is generating more resources in the future which would add to a strong and  more reliable tax base,” it added.

The study done by Anjali Rajan of CDS states that the state has to increase its revenue receipts under conditions of fluctuating tax buoyancy, the rising debt-to- GSDP ratio and excessive dependence on remittances.

The state of Kerala has the lowest revenue receipts relative to other South Indian states. Also it is the only southern state that has a positive revenue deficit-to- GSDP ratio. Total revenue receipts have been fluctuating between 10 and 12 percent of GSDP throughout the reference period (2001-02 to 2011-12).

“The state has been growing at a brisk pace during the past decade, but the tax-to-GSDP ratio has not displayed the same pace of growth,” the study notes. The study attributes this stagnancy in tax growth to the non-taxable nature of the burgeoning service sector. 

States can tax the sale of commodities and not the services except a few ones like electricity. “Kerala, therefore, is at a disadvantage by being barred from taxing the fastest growing sectors of its economy,” the study notes.

Anjali Rajan notes that  this service-sector growth itself has evolved out of cross- border and inter-state remittances and has resulted in the state having sectors and sub-sectors, which grow fast, but are out of its tax net like telecommunications, banking and insurance and a wide range of services included in ‘other services’.

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