Finance minister Dr Thomas Isaac looks to increased tax revenue to tide over crisis

THIRUVANANTHAPURAM: Finance minister Dr T.M. Thomas Isaac has put forward a three-pronged strategy to tide over the fiscal crisis. Raise the tax revenue and sustain its growth at 20-25 per cent, clamp strict controls over non-plan expenditure and go for massive off-budget borrowings to increase capital expenditure.

With expenditure controls a tough ask, Mr Isaac’s priority will be to vastly improve tax collection in all departments, particularly in the major revenue earning departments like commercial taxes, motor vehicles, registration, revenue and excise. “We have to gear up our tax machinery and ensure that growth rates in tax collection are sustained at 20-25 per cent per annum for the next five years,” Mr Isaac said. The finance minister pins his hope on Goods and Services Tax (GST) regime, which is expected to come into force in two years, to achieve the target.

On the expenditure side, Mr Isaac has only a cramped space from which to manoeuvre. Committed expenditure like salary, pension and interest cannot be tampered with, it can only be moderated at a reasonable level. Therefore, Mr Isaac said there would be strict control over ‘non-plan revenue expenditure minus SIP’, and this would mean no more sanctioning of schools, colleges and taluks, and also curbs on governance splurges.

However, it will be to step up capital expenditure that Isaac would be adventurous. “Bridging the infrastructure deficit will have to be one of the foremost critical priorities of the government,” he said. Essentially, he will tap off-budget resources through various financial and infrastructure institutions in the state by converting them into special purpose vehicles.

“The credit rating of these SPVs will be enhanced by bringing on board some of the most reputed names in finance, like former RBI governors for instance,” he said. Legislation will also be introduced to keep these SPVs replenished using funds from other resource-generating arms of the state. “Whatever limited resources that we can mobilise for capital expenditure should be utilised to leverage much larger extra-budgetary resources,” Isaac said.

IMMEDIATE FISCAL CHALLENGES
No Revenue Deficit Grant after 2017-2018: The grant, which began during 2015-16, will completely dry up in 2018-19. As per the 14th Finance Commission award, the state’s entitlement: 2015-16 – Rs 4,640 crore; 2016-17 – Rs 3,350 crore; 2017-18 – Rs 1,529 crore.

Increased devolution to local bodies: The LDF government will up the devolution of funds to local bodies by 20 per cent, up from the existing 18 per cent, as per the recommendation of the 5th State Finance Commission.

Pay revision arrears: Arrears have to be paid in four instalments. The first instalment of arrears, which amounts to Rs 4,442.26 crore, will have to be distributed on April 1, 2017

Repayment of loans: From 2017 onwards, the state will have to shell out Rs 1,200 crore on an average to service the state’s internal debt