Vinson Kurian

Runaway growth in revenue expenditure is the root cause of the State's budgetary problems.

Thiruvananthapuram , Sept. 28

THE growth of revenue receipts in the southern States over a 25-year period (1974-75 to 2001-02) reveals that Kerala has lagged behind Andhra Pradesh, Karnataka, Maharashtra and Tamil Nadu in achieving relative percentage growth per annum.

Andhra Pradesh topped the charts with 17.80 per cent, followed by Tamil Nadu (16.80 per cent), Karnataka (16.18) and Maharashtra (16.10). Kerala (15.12 per cent) made up the rear - almost one percentage-point behind the next immediate contender.

The comparisons were elucidated in a study `Emerging trends in revenue and expenditure of Kerala' brought out by Dr R. P. Nair, Fellow, Institute of Social Sciences, Thiruvananthapuram. Dr Nair has 40 years of experience in planning affairs and public finance.

During the 70s, Kerala flaunted a comfortable budgetary position when growth in revenue expenditure lagged that of revenue receipts by a respectable margin.

The State's own tax revenue grew at a higher clip than revenue expenditure, which helped the Government of the day maintain a good account of its finances. Transfers from the Centre also looked up, growing slightly more than 21 per cent.

But the good tidings came to an end soon. The eighties saw revenue expenditure gallop by 15.66 per cent. The transfers from the Centre declined sharply to 13.09 per cent per annum. Tax revenue decelerated to 15.63 per cent on an annual basis.

Not surprisingly, the State's enviable budgetary position took a beating, with the surplus of Rs 31 lakh in the early seventies giving way to a deficit of about Rs 27 crore in the early eighties. This jumped to Rs 400 crore in the early nineties, and then blazed a trail to Rs 4,200 crore in 2002-03. According to Dr Nair, runaway growth in revenue expenditure is the root cause of the State's budgetary problems. In the 80s (1980-81 to 19990-91), revenue expenditure grew 15.66 per cent on an average every year - 2.7 per cent higher than revenue receipts.

Though the increase in revenue expenditure was only two per cent in the 80s, the fall in revenue receipts was 1.66 per cent per annum. Also, Central transfers fell more drastically by around eight per cent annually. The outcome was deficit, which has persisted thereafter.

Since 1985-86, there have been restrictions on borrowing from the Reserve Bank for ways and means, and the ever-increasing current expenditure has had to be accommodated by displacing capital expenditure.

This is evident from the drastic fall in the growth of capital expenditure from 23.52 per cent during the 70s to just 9.6 per cent during 1991-2001.

The rapid growth of revenue expenditure in relation to growth of revenue receipts has brought about an explosive cycle in expenditure growth.

Consequently, the use of borrowed funds for meeting revenue expenditure has not just failed to create a corresponding source of revenue, but has also resulted in raising the interest liability by many a notch.

The borrowed funds, purportedly employed as capital expenditure, were not efficiently used, leading to large diversion of funds, Dr Nair said.

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