Economic Review exposes massive fiscal indiscipline

Thiruvananthapuram: The Economic Review 2013 shows unprecedented slippage in fiscal consolidation during 2012-13.

The document shows that the actual revenue deficit for the fiscal was Rs 9351 crore, 175 percent higher than the revised RD figures presented by finance minister K M Mani last year. While presenting the 2013-14 budget, Mani had said that the revised revenue deficit for 2012-13 was only Rs 3406 crore.

It is usual for accounted figures to go above the revised estimate but never before had the final figure differed so vastly from the revised estimate put out by a finance minister. Therefore, the revenue deficit for 2012-13 is 2.6 percent and not 0.9 percent as claimed by the finance minister.

It is now clear that Mani will not be able to achieve zero revenue deficit in 2014-15 as mandated by the Fiscal Responsibility and Budget Management Act. The finance minister’s plan was to reduce revenue deficit to 0.02 percent in 2014-15.

The higher revenue deficit has also increased the ratio of revenue deficit to fiscal deficit in 2012-13 to 62.33 percent. This means that a major portion of borrowed funds, like in the preceeding fiscals, are being used to meet revenue requirements and not for development needs.

Economic Review 2013, tabled in the Assembly on Wednesday, further states that the growth rate of revenue receipts declined sharply.

In 2012-13 total revenue receipts of the state was Rs 44137.30 crore with an increase of Rs 6126.94 crore. “The growth recorded in 2012-13 was 16.12 percent against 22.65 percent in 2011-12,” the Review observes.

The state could not sustain the gains of fiscal consolidation for nearly a decade from 2002-03 to 2010-11 during 2011-12 and 2012-13, the Review says. 

The failure is attributed to recession and the impact of the slowdown on all sectors of the economy.

“Along with this, persistent high level of inflation has pushed up government expenditure,” the Review notes.

Further, the Review says that the period from 2011 was characterized by large increase in committed expenditure on account of salaries, pensions, increased devolution to local bodies, and high outgo on welfare programmes.

Next: Budget ahead of polls a test for finance minister

Budget ahead of polls a test for finance minister

Thiruvananthapuram: Consider an acrobat who has been asked to hold on to a tumbler filled to the brim with boiling water without spilling it while performing a seemingly impossible body-twisting feat.

Finance minister K M Mani will have to enact the financial equivalent of such a feat when he presents his 12th budget on January 24. Mani has to hit upon bold new ways to raise huge revenues but while doing so he has to be careful not to hurt UDF’s chances in the impending Lok Sabha elections.

Former finance minister Dr T M Thomas Isaac said that finances have deteriorated so much that Mani had to impose new taxes if he wants to save the economy.

“Mani will earn the reputation of being the finance minister who has imposed the heaviest tax burden on the people,” he said. “He is even planning to impose tax on common goods like textiles to mop up as much revenue as he can,” Isaac said.

Economist and tax expert Jose Sebastian said that the state’s revenues were “grossly insufficient”.

He said that Mani would have to think of taxing textiles and sugar and further increasing the duties on cigarettes.

“He might even have to think of introducing service charges in the health and education sector,” he said.

“If such measures are not taken the economy will collapse,” he added.

Economist Lalu Jacob said that 43 percent of the state’s revenues come from three sources: liquor, petrol and lottery.

“This means that a lot many untapped areas like textiles and services are waiting to be exploited if Mani has the political will,” he said.

Industry wants from Mani

A transparent and business-friendly system for collecting Value Added Tax is one of the major expectations of trade and industry. The industry expects the FM to address the issues of non-uniformity and frequent increase in tax rates. Tax levied in Kerala on many products is higher compared to the rates in neighbouring states. This leads to unhealthy competition and diversion of trade to other states.  

Trade and industry calls for the appointment of an ombudsman in the commercial tax department to avoid the hardships businessmen face under the VAT regime.

Policy initiative for the timely completion of infrastructure projects, especially the highway network in the State. The Finance Minister should address the issue of compensation for land acquisition, a major hurdle in the way of key infrastructure projects.

The Finance Minister should also address the issue of giving a tax holiday to the LNG Terminal at Kochi for at least five years. The State Government now levies 14.5 per cent VAT on LNG.

Stringent measures to curb footpath trade of imported Chinese goods.  These goods have been destroying the domestic manufacturing sector, especially the small and medium scale enterprises.