THIRUVANANTHAPURAM: Finance minister Dr T.M. Thomas Isaac, in his White Paper on State Finances tabled in the Assembly on Thursday, said that if the UDF’s mismanagement of finances had continued, the state would have plunged into what he terms “fiscal anarchy” by 2017-18. Mr Isaac pointed out four tell-tale signs of fiscal deterioration: negative cash balance in the Treasury, immediate liabilities of Rs 10,000 crore, alarming neglect of deficit goals, and the desecration of the Budget document. The cause for the rot has both revenue and expenditure dimensions. It was a failure of both expenditure control and resource mobilisation, the White Paper says.
NEGATIVE BALANCE
“Nothing conveys the state of finances, and the quality of fiscal management, more vividly than the fact that the Treasury did not have money even for day-to-day expenses,” Mr Isaac said. He said that the closing balance on March 31, 2015, was not Rs 1,644 crore as claimed by the UDF. “The reality is, approximately Rs 1,800 crore of payment was kept blocked at the treasuries and at the government level. They resorted to the simple expedient of postponing the payment. This had resulted in artificially depicting a positive cash balance while in reality the state was actually maintaining a negative balance of Rs 173.46 crore,” the finance minister said.
The White Paper shows a growth of cash balance from virtually zero in 2006, reaching a peak of Rs 3,514 crore in 2011, the last year of the LDF government, and then dropping dramatically, dipping to negative by 2016. An inverted ‘U’ curve, Mr Isaac calls it.
IMMEDIATE LIABILITIES
The finance minister termed as “staggering” the immediate and medium-term liabilities that the UDF government had saddled upon the new government. By Isaac’s conservative reckoning, it is more than Rs 10,000 crore. Immediate liabilities, Mr Isaac said was Rs 6,302 crore, which includes money that has to be paid to pensioners, to contractors, for land acquisition, and also the money taken from welfare boards.
Other short-term liabilities — which includes money that has to be paid to ongoing projects and also to Supplyco and Civil Supplies Corporation for market intervention activities — work out to Rs 4,326 crore.
FISCAL DESTABILISATION
Achieving the fiscal targets is a lost dream. According to Mr Isaac, had the UDF government sustained the downward deficit trend seen in the oughties, from 2001 to 2011, revenue deficit could have been brought down to nearly zero percent by 2015-16 as proposed by the 14th Finance Commission. “During the UDF tenure between 2001 and 2006, the revenue had increased but they compressed the expenditure. During the LDF tenure (2006-11), we stepped up expenditure but also ensured the growth of revenue. However, during the last UDF tenure, they neither increased revenues nor controlled expenditure,” Isaac said.
Isaac said that the former LDF government had bequeathed a healthy fiscal environment to the UDF. “The UDF had inherited a revenue deficit of 1.28 percent and fiscal deficit of 2.70 percent,” the White Paper said. “This means that by then the state had achieved the fiscal goal of maintaining the fiscal deficit at less than 3 percent of GSDP on March 31, 2011. The revenue deficit was the lowest in the millennium,” Isaac said. While the average revenue deficit during the LDF tenure was 1.83 percent, it shot up to 2.30 per cent during the last five years.
UNDERMINING BUDGET
According to Mr Isaac, the UDF government violated the sanctity of the Budget document. “For the last three years, budgets placed before the State Legislature have not had much of reality with either the resources to finance them or with the actual expenditure incurred at the end of the year,” the White Paper said.
The tax revenue, plan revenue expenditure and capital expenditure had fallen shockingly below budgeted figures since 2012. The capital expenditure achieved was only 45 per cent of the budgeted figure, and the tax revenue realised was 75 per cent of the projection. What’s more, the actual revenue and fiscal deficits turned out to be considerably higher than what was projected in the budget document. “Budget became a farce. It was all about fudging figures,” Isaac said.
WAYWARD EXPENDITURE
The White Paper states that the one reliable indicator of expenditure efficiency is the ability of the government to rein in avoidable expenditure or expenditure that can be postponed. In this count, Isaac said, the UDF government had fared miserably. He said the non-plan revenue expenditure (NPRE) minus committed historical liabilities like salaries, interest and pension (SIP) had shown an “unsettling” growth during the last five years.
This component (NPRE minus SIP) includes additional unproductive expenses incurred by the state like the sanctioning of new schools and colleges, renovation of ministerial bungalows and even the money spent for former Chief Minister Oommen Chandy’s mass contact programme. According to Isaac NPRE minus SIP was highest during the UDF tenure. If the average expenditure under this head was 27 per cent, it rose to 32 per cent in 2015.
WEAK TAX GOVERNANCE
The White Paper shows that the growth in commercial taxes, which looked up since 2007 and reached a peak during the 2010-11 fiscal, started declining and fell below the economic growth of the state from 2013 onwards. The share of commercial taxes in revenue receipts had started to rise since 2008, touched nearly 50 percent at the end of the LDF tenure, rose to a record of 51 percent during the 2012-13 fiscal and then had a steep fall and now constitutes only 45 per cent of the revenue receipts. Tax collection also consistently fell below budget estimates.
The White paper offers two main reasons for the state of affairs: one, corruption and nepotism in the tax administrative apparatus and two, unnecessary government stays on commercial taxes. UDF budgets offered lavish concessions. In the four UDF budgets, concessions not less than Rs 881 crore were made to select group of taxpayers; the reduction in registration fees of family partition deeds was held up as example.
Stays on collection took on the nature of farce. “It is seen that in 2011-16, government issued stays on collection of commercial taxes alone for an amount of Rs 440.41 crore,” the White Paper said. The total tax revenues raised but not realised by the end of 2014-15 fiscal was Rs 13,019.81 crore. Of this, Rs 7861.42 crore is undisputed, but still not collected.
