Correcting Kerala's finances

KERALA'S FINANCE MINISTER, Mr. K. Sankaranarayanan, has taken the easy option of raising taxes to begin the much-required process of correcting the State's finances. That there were going to be hard decisions in the Budget was evident in the White Paper that the Finance Minister had presented recently for a larger public debate. Against that backdrop, the announcements made by the Finance Minister, aimed at raising additional resources amounting to Rs. 456.40 crores, reflect the normal options available to policy-makers. However, while it is certainly the case that Kerala is going through financial difficulty, the solution lies in charting out an imaginative, but not too hard a course for restoring the financial health of the State. Though the measures announced last week raise more revenues, the Minister should also have considered the impact of an across-the-board rise in prices before bringing in the changes. Needless to say, the decision to impose an additional sales tax of 15 per cent is bound to bring more pressure on individual purses. While there is a justification in raising taxes on certain goods such as liquor, certain measures, such as the tax on medicine, are likely to draw some criticism in the days ahead. The decision to establish a Settlement Commission to bring down the tax arrears is a welcome measure, but much of its success will depend on how the body functions.

In contrast to the tone of the White Paper, in which the Kerala Government had hinted at levying user-charges, the Budget takes hesitant steps in course correction. The opportunity that the new Government has, in the form of presenting its maiden Budget, would have been better utilised if a road-map was spelt out on how it plans to restore the fiscal health of the State over the next five years. That there is a need to address the issue of levying user-charges, even if it is to a limited extent, is one example of the basic changes that are required at the policy level. Mr. Sankaranarayanan could have used the opportunity available to him to correct some of the distortions on this front. The decision to levy a turnover tax is also bound to raise discontent, especially given the fact that in its implementation it has been operating counter to its concept: though the tax should be borne by business establishments, it is invariably passed on to the consumer. Raising revenues, however, is one side of fiscal management. The other, equally important side - restricting expenditure - could have been attained if some decisions, a grant of Rs. 25 lakhs for Members of the Legislative Assembly, for instance, were not hurried into. The tendency of States to cut their Plan outlays to provide finances a better look is a serious issue as it affects the benefits from long-term developmental activities.

In spelling out the proposals to involve the private sector to strengthen public infrastructure as well as in setting up an investment growth fund to attract overseas investments, the Government has taken the right steps to bring in long-term capital. These efforts, along with the thrust given to Information Technology and tourism, are in the right direction and would have to be followed up effectively. While the harder decisions outlined in the White Paper, such as rationalisation of user charges, and a basic policy decision on how to deal with the public sector undertakings have been kept in abeyance, those will have to be taken in the coming months. The years ahead will also have to be utilised by the Government to bring about long-term policy changes that do not continue to bleed public finances.

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Section  : Opinion
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