The Hindu : Straitened circumstances

Online edition of India's National Newspaper
Wednesday, Mar 13, 2002

Opinion

Opinion - Editorials

Straitened circumstances

AS IN SEVERAL other States, Kerala's finances are under severe strain. Seen against the gloomy economic backdrop of dwindling inflows to the State's exchequer starkly contrasting with seemingly unending payouts, the present financial difficulties of Kerala are far from over. That the Finance Minister, K. Sankaranarayanan, has stuck to the path taken last year is understandable. What eludes a convincing answer is whether the State Government had explored all its options before deciding on a couple of revenue-raising measures: imposing an Entry Tax on nine categories of goods and extending the Additional Sales Tax for another fiscal year. These two measures, which are expected to harvest Rs. 255 crores, comprise the main steps for revenue mobilisation for the fiscal year 2002-03. Seen against the total Additional Revenue Mobilisation of Rs. 283.50 crores, these two levies are expected to bring in close to 90 per cent. In a way, the Finance Minister has utilised a tested axiom of fiscal policy: the inability of the taxpayer to escape from indirect taxes. The validity of this precept, however, does not relieve the Kerala administration from the serious responsibility of looking at alternatives and of spreading the additional burden in a more sensitive manner. Consequent to these levies even the modest plans for savings and investment by the salaried, especially those in the middle-income range, are bound to suffer.

If hard times require hard decisions, the possibilities of pruning additional expenditure — to the tune of Rs. 523.81 crores — and stretching the levies more evenly through some non-tax revenue mobilisation measures should have been given some more attention. In a way, the Kerala budget should come as a pointer to fiscal management at the State level in the years ahead. Much of the financial distress comes from the profligacy of the past, especially the massive burden on the State's finances after the Fifth Pay Commission. The linking of the incentive funds proposed by the Eleventh Finance Commission to fiscal reform has bound the States to embark upon the sensitive process of restructuring their finances. The recently concluded 32-day strike by Kerala's Government employees and teachers brought out the seriousness of the task. Mr. Sankaranarayanan's promise of reforming the State's finances through various measures should be preceded by a meaningful public discussion. Such an exercise assumes importance particularly in areas such as the power sector and the restructuring of the public sector. Moreover, given the apprehensions over seeking external assistance, the difficult path of reforms can be traversed in a better manner if the administration aims at carrying the people along with it.

The decision to introduce a social safety fund, with an initial corpus of Rs. 25 crores, marks the commencement of a long socio-economic process. However, in manner it is outlined in the budget, it falls short of providing an appropriate safety net and runs the risk of becoming yet another of the several grandiose plans that tragically failed to address substantial issues relating to poverty. The rather loosely termed objective of the scheme — "to take care of the minimum needs of the poor" — is unlikely to enthuse the required confidence that the harsh consequences of liberalisation will be effectively countered. The budget's proposals in two areas — education and tourism — mark the recognition of Kerala's advantages and the Government's steadfastness in continuing with the strength of the past. For the State Government to deliver upon the familiar promises on employment generation and poverty eradication, a prerequisite is a meaningful restructuring of its finances so that the constrained resources are freed up for spending in the social sector.

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