Thiruvananthapuram: The State Government’s unmitigated failure to plug sales tax leak in conventional sectors like gold jewellery, textiles and land transactions plus the drastic fall in excise revenue from liquor sales have contributed to an unbridled revenue deficit during the past four years.
The report of Comptroller and auditor General of India on the State’s finances for 2015 paints a grim picture, showing that the resource gap (gap between incremental non-debt receipts and incremental total expenditure) was positive only in 2010-11 and slipped to negative these past four years.
In 2014-15, revenue receipt grew by 17.8 percent (up by Rs 8,773 crore) and revenue expenditure grew by 18.6 percent (increase of Rs 11,260 crore) over the previous year. Reduced growth of revenue receipt compared to revenue expenditure led to the increase in revenue deficit by Rs 2,487 crore in 2015.
The CAG audit shows that incremental non-debt receipts were inadequate to finance incremental primary expenditure and interest repayment. In plain terms, the Government had to depend on borrowed funds even for primary expenditure.
This is bad news for the State government that enacted the Kerala Fiscal Responsibility (Amendment) Act 2011, with the avowed objective of revising targets for fiscal stability by progressive elimination of revenue deficits and through sustainable debt management. The Act came into force on November 2011.
Though it is not part of the CAG report, experts point out that the gold jewellery business in the State netted a paltry annual tax income of Rs 450 crore at 5 per cent tax rate. The total gold jewellery sales officially are worth Rs 9,000 crore but unofficially the annual gold business is estimated at Rs 70,000 crore in the State. Mere 1 per cent tax would have brought in Rs 700 crore if only the State had an effective mechanism to plug the revenue leak. Evasions in tax on poultry and textiles and land deal undervaluation continue to bleed the State.
The situation would have been still worse had Additional Chief Secretary K M Abraham not applied a course correction when he came into Finance in September 2014; the treasury was on an overdraft. Some quick revenue realisation measures and some expenditure reduction measures helped survive so far.
