The LDF is implementing a government-led growth strategy, which will be funded outside the budget through Kerala Infrastructure Investment Fund Board, popularly known as KIIFB. This KIIFB-led growth strategy can backfire, landing the State in a serious fiscal crisis. No one will object to infrastructure investment through borrowings. But, the problem with KIIFB-led growth strategy is that part of the borrowed money is to be spent on projects that will not yield revenue, like housing for the poor. Around Rs 3000 crore is to be spent on KSRTC revival, which has not produced results in any of the previous such revival programmes. KIIFB itself had a pathetic performance in 2016-17 and 2017-18, with targets for revenue mobilization and expenditure falling short by a huge margin. Revenue expectations from higher growth are too optimistic; particularly in the context of falling West Asian remittances impacting growth.
The KIIFB alternative is a big gamble, which has a high probability of failure. The government will have to repay around Rs 1 lakh crore in 9 years at around nine percent interest. Since many projects being funded by KIIFB do not generate revenue, repayment will be problematic, particularly in the context of unsustainable revenue deficit and ballooning debt. 2018 budget expectations regarding fiscal and revenue deficit are unrealistic. The revenue buoyancy of the state has declined to less than 9 percent from more than 20 percent a few years ago. Further deterioration of revenue deficit and ballooning of the state’s debt burden loom large.
The real villain in Kerala’s fiscal crisis is the salary and pension expenditure, which increased by more than 300 percent in the last 8 years. The budget doesn’t offer any solutions for this structural fiscal crisis facing the state. Social security and welfare measures in the budget like provision of Rs 1200 crore for women-centric programmes, gender justice initiatives, SC-ST welfare schemes, homes for the homeless and a plethora of small programmes for the welfare of the marginalized and vulnerable are laudable. The state should be focus on attracting investments it lags far behind other states. Kerala’s future economic growth should be private investment-led growth. Unfortunately, the budget talks about more investment in PSUs. Kerala has 96 PSUs under different departments, with accumulated losses of Rs 13,969 crore till 2016. Pouring more money into these black holes, as the budget attempts to do, doesn’t make economic sense. In brief, the KIIFB-led growth strategy is a risky adventure.
(The author is Chief Investment Strategist, Geojit Financial Services. Views are personal)
