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Fiscal recovery remote in the near future: Economic Review

Nonetheless, like the finance minister, the ER too lays much store by the indirect tax reform of GST.

THIRUVANANTHAPURAM: A recovery from the fiscal stagnation of the state is not possible in the near future. This was stated in the Economic Review which was tabled in the Assembly on Thursday. On top of the shock inflicted by demonetisation, the ER says that the economy will have to bear the burden of the 10th pay revision and also find resources to sustain the social welfare measures of the state. The general drift of the ER is in line with Finance Minister Dr Thomas Isaac’s confession that revenue deficit would swell to record levels during 2017-18.

Even the GSDP (at current prices) has shown a lesser growth during 2015-16. from a 13.1 percent growth in 2014-15, it has come down to 11.8 percent. This is more or less accounted for by a drop in inflation. However, the negative trend is expected to continue. “The ongoing contraction in GDP growth will be worsened by the cash crunch," the ER said. “This will result in reducing the revenue collection and widen revenue and fiscal deficit gaps,” it added. Revenue and fiscal deficits have shrunk quite commendably in 2015-16 but the committed expenditure on account of salaries, pensions and debt charges showed a considerable increase during the fiscal.

The pattern of expenditure leaves much to be desired for a state that claims to be a welfare state. During 2015-16, the state's share of expenditure on education and health is higher than the national average. But significantly, when it comes to social sector and capital expenditures, the state falls way below the national average. This is a clear prompt to the finance minister to rearrange his expenditure priorities to give social sector expenditure more impetus. It is the growth in the state’s own tax revenue that is a cause of major concern. Even in 2015-16, there was only a disappointing growth of 10.68 percent when the budget estimate was that it would grow by nearly 20 percent.

Nonetheless, like the finance minister, the ER too lays much store by the indirect tax reform of GST. "It is widely expected that being a consumer state, Kerala will benefit the most out of the introduction of the GST. The extent of GST compensation from the Centre will be a determining factor in the state's finances in the immediate fiscal," the ER notes. For a state struggling to improve the rate of growth of tax revenues even beyond 11 percent, an assured 14 percent growth once GST comes into force will be a huge fillip.

( Source : Deccan Chronicle. )
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