Revenue receipts soar 63 pc; committed expenditure falls below 70 pc of revenue income in Q1
By CL Jose
THIRUVANANTHAPURAM/August 07-2022: For a state like Kerala that has been tagged as a hyper borrower among other states, one might wonder how it managed to make ends meet in the first quarter with a paltry borrowing.
The official numbers on the Kerala finance released recently reveal that the net borrowing during the first quarter ending June 2022 was less than even the interest paid on the borrowings during the period.
True, Kerala received Rs5693 crore during Q1 on account of the GST compensation for the period until May, which was a succour at the right time.
The net borrowing made by the state during the first quarter was just Rs5301.74 crore accounting for a little over 11 per cent of Rs46,469.80 crore, budgeted for the whole year, Given that the borrowing from the market was just Rs1500 crore, it’s not clear where the state had borrowed the rest of the gross borrowings at Rs10,972 crore during the quarter.
However, the net borrowings at Rs5301.74 crore were even lower than the interest outgo during the quarter, at Rs5406.87 crore.
The real magnitude of this rare phenomenon may be explicable if this amount is compared with the borrowing made by Kerala for the same period last year, at Rs22,835 crore (net), more than four times that of the current year.
In fact, the previous year saw the state frontloading its borrowing to the extent of almost 64 per cent of the borrowings budgeted for the whole financial year, whereas it was a little over 11 per cent for the same perood this year.
Of course, the downsizing of borrowing was not as wished by the state, which remained cash-strapped right from the beginning of the year, but it had little choice on the borrowing pattern, thanks to the tough stance taken by the Centre.
The finance minister, KN Balagopal, has time and again called out at the Centre for straitjacketing Kerala on its freedom to borrow from the market.
Centre’s clampdown
The Centre is reported to have imposed clamp-down on Kerala’s borrowing programme citing the state’s ‘large’ off-balance sheet borrowings predominantly routed through Kerala Infrastructure Investment Fund Board (KIIFB), Kerala Social Security Pension Ltd (KSSPL), etc.
The former finance minister, Dr Thomas Isaac, who was the mastermind behind the ‘innovative’ philosophy of unrestrained borrowing for the good of the state’s future, is now readying himself to face Directorate of Enforcement’s (ED) queries seeking explantion on the ‘state’s’ borrowing from overseas in the name of ‘Masala Bond’ in 2018 without the consent from the Centre.
However, Isaac who has earned a reputation for himself as a seasoned economist, is expected to stick his neck out and present the oft-repeated argument that KIIFB is a body corporate and hence entitled to do external borrowing, and has moreover, secured the approval from RBI, and hence there’s no violation of Foreign Exchange Management Act (FEMA) on Masala Bond.
Economy begins firing
The sluggish borrowing so far in the current year apart, the economy of Kerala has showed signs of revival with the revenue having started trending upwards in a big way compared with the same period last financial year.
The Q1 revenue witnessed a 63 per cent spike to Rs31,347.30 crore compared with the Q1 revenue in 2021-22 (FY22).
The analysis of revenue break-up shows that the tax revenue during the period has surged 65 per cent to Rs18,830.21 crore against Rs11,403.84 crore reported for the same period last financial year, whereas the non-tax revenue soared 3.45 times in the first quarter of the current year from a mere Rs616.30 crore to Rs2126.99 crore.
Committed expenditure
The scale of committed expenditure in relation to the revenue receipts has always been a ‘litmus test’ to not only measure the strength of the economy, but more importantly, it represents a ‘political slogan’ as to how committed the government is to the socially marginalised.
Surprisingly, the committed expenditure, which comprises interest, salary & wages, and pension, during 2021-22, represented about 135 per cent of the revenue receipts, which is certainly unsustainable for the sheer fact that the governments can’t run the show by paying interest and salaries using borrowed money, for long.
Declines to below 70 pc
But, for the first quarter of the current year, the ratio of committed expenditure to revenue receipts has fallen to below 70 per cent, which is even lower than 75 per cent that has been budgeted for the whole of 2022-23.
The comparable quarter of the just concluded financial year (FY22) painted a much grimmer picture as the committed expenses for Q1, 2022, exceeded all limits to reach 136 per cent of that quarter’s revenue income.
