Kerala Finance Minister Thomas Isaac has been leading the charge in the criticism against the Cen- tre’s two options to states to make good the short- fall in GST revenue. “Any option that entails a sacrifice in GST compensation is not acceptable to us.
Our proposal is that full compensation must be paid, whether it’s an act of god or man, and the Centre should borrow and provide the money to the cess fund,” says Isaac. “We are confident we will get our total dues from the Centre, we will fight to the last. I don’t think there’s a way we will lose our case — there’s no act of god in the Constitution.” Kerala had factored in a 14% growth in GST revenue in its budget and accepting any cut in that would mean a cut in expenditure, says Isaac.
“That’s the last thing we want to do during Covid-19.” Even before the news about the GST compensation broke, Kerala had been in a tough spot. While the revenue receipts for 2020-21 was estimated at Rs 1,14,636 crore in the budget, a report in May by the Thiruvananthapuram-based Gulati Institute of Finance and Taxation estimated that the shortfall in revenue receipts was likely to be Rs 33,456 crore. Another estimate by the Kerala State Planning Board (KSPB) has put the shortfall in gross value added for Q1 of 2020-21— based on person days lost and production loss due to the impact of Covid-19 and lockdown — at Rs 80,000 crore. State planning board member R Rama- kumar does not expect Q2 to be much better. “I believe the second quarter will also be negative on a year-on-year basis,” he says.
New estimates are currently under way. With about 80% of the state’s revenues coming from the Centre through devolution of taxes and GST revenues, Kerala has a lesser degree of freedom, says Ramakumar. “It’s completely dependent on the Centre, through direct and indirect taxes.” Apart from Covid and consecutive years of floods that hit the state hard, other challenges abound.
As a June report by an expert committee, set up by the finance department, on the response strategy to Covid, points out, salaries, pensions and interest account for nearly 61% of the revenue expenditure. Jose Sebastian, a retired faculty member of the Gulati Institute, says Covid and GST are merely the culmination of a deterioration that started long ago.
“The bulk of the state’s revenue is going towards paying salary, pension and interest. The state has failed to correct the fiscal imbalance it has been struggling with for the last 35 years,” he says. Isaac says the state’s immediate priorities include creating job opportunities for people returning from West Asia.
The state has announced a 100-day plan which includes helping set up at least 20,000 small-scale but viable enterprises, fast-forwarding infrastructure investment and stimulating agriculture, so that the state achieves self-sufficiency in the production of vegetables, milk and eggs. “By the end of 100 days, we want the government to be back in business while fighting Covid,” says Isaac. With daily cases still increasing in the state and the assembly election likely to be early next year, the LDF government has challenging months ahead.