Kerala Budget: Why has Balagopal few choices, only?

Kerala finance minister K N Balagopal. (File image)

While reading the 2023-24 budget speech, Kerala's finance minister KN Balagopal expressed his cheerfulness about the state achieving 12 percent gross domestic product (GDP) growth in 2021-22. And with pride, he said, "state's revenue, which was Rs 54,955.99 crore in 2020-2021, increased to Rs 68,803.03 crores in 2021-2022." Balagopal was presenting Pinarayi Vijayan-led Left Democratic Front's second consecutive government second budget.

Even though Balagopal wasn't looking enthused like he was in his previous budget presentation, fund allocations sounded good. However, until 11 am, the question of the money source remained unanswered, especially when the budget document said that Kerala is facing a public debt of Rs 4 lakh crore. But when Balagopal read out the final few paragraphs of the budget speech, all the money source questions had answers. The elixir he had was to hike tariffs and taxes for fuel, liquor, vehicles, power, registration stamp, fair value for the land, buildings, and court fees.

Before 9 am, while leaving his official residence for the Kerala Assembly, Balagopal had blamed the Union government's stringent financial policies for the fund crunch. And during the initial minutes of the budget speech also, he said the cessation of goods and services tax (GST) compensation by the Union government, cutting down the state's share, treating public accounts as debt liability, considering off-budget borrowing as state's debt and constraining borrowing limits have resulted in a revenue shortfall of thousands of crores. At home and in the state assembly, when Balagopal blamed the Union government, he was slipping in a tax hike.

Rising Tax Burden

Reading out the 'real budget', Balagopal proposed a social security cess on the sale of petrol and diesel at Rs 2 per litre to raise Rs 750 crore for the social security seed fund. The social security fund provides a monthly pension of Rs 1,600 for 62 lakh people in Kerala. However, without increasing the social security pension, Balagopal has come up with the fuel cess and liquor price hike.

In the past, the government had formed a limited company to mobilise funds for pensions. And the limited company raised funds through off-budget borrowings. And the Comptroller and Auditor General had criticised the off-budget borrowings for pensions. In July 2022, the limited company had a liability of Rs16,000 crore. These social security pensions and free food kits won the second term for Pinarayi Vijayan-led Left Democratic Front in 2021. And as the Union government has disagreed with off-budget borrowings by KIIFB and the pension limited company has to restrain from taking further loans, Balagopal has been forced to impose a cess on fuel and hike the liquor price by Rs 20 and Rs 40.

Balagopal expects Rs 400 crore through the liquor price slab hike. Already, Keralites pay an exorbitant 251 percent tax on liquor in Kerala, and the price had been increased by Rs 10-30 per bottle before budget as handling charges. Besides fuel cess and liquor price hikes, Balagopal has proposed an additional 5 percent duty on electricity used at commercial and industrial establishments, aiming for additional revenue to the tune of Rs 200 crore. But the increase of 5 percent duty on electricity is going to have an adverse impact. New industries will be doubtful about Kerala as a destination and the existing ones may suffer an extra burden of production cost, which will eventually lead to a price hike of products.

Balagopal expects Rs 1,000 crore through property tax changes, and Rs 92 crore from imposing a 2 percent one-time tax on newly purchased motorcycles priced below Rs 2 lakh. He also expects Rs 340 crore by imposing various one-time taxes on newly purchased motor cars and private service vehicles.

Balagopal also amended the Kerala Court Fees and Suit Valuation Act, 1959 to extend the collection of one percent additional court fee to more areas. The court fee will be introduced within the ambit of e-stamping to facilitate ease of use for citizens. This is expected to bring additional revenue of about Rs 50 crore. And before the budget, water charges were increased by 1 paisa per litre, which will reflect in the coming April bills. An increase between Rs 200 and Rs 400 in bills is expected. Last December, Rs 6 per litre increased milk prices.

Inflationary Measures

Now, the cess on fuel and additional tax on electricity will shoot up the inflation in Kerala. And to tackle inflation, Balagopal has set aside Rs 2,000 crore in the budget. In the previous budget also, Rs 2,000 crore was set aside to tackle inflation, but prices of essential items never went down. Kerala’s retail inflation last December was up by 0.02 percent when compared to November, contradictory to the declining trend in the national average. In comparison, the all-India inflation declined by 0.45 percent over the same period.

Balagopal has also set aside funds for many support systems. Allocating Rs 50 crore allocation for the welfare of the Keralite returnee migrants, Rs 600 crore to support rubber farmers, and Rs 50 crore to handle human-wildlife conflicts, are a few. However, a tax hike on fuel and a duty increase in electricity has dampened whatever positivity the budget had.

While reading the final few paragraphs, we could see that Balagopal was in a hurry to finish it as soon as possible. Even though he blamed the Union government for the financial crisis, we could read from his face that he doesn't have much to do other than to tick the boxes of fund distribution and end the speech. Interestingly, Thomas Isaac, Kerala's previous finance minister, who redesigned Kerala Infrastructure Investment Fund Board (KIIFB) and founded Kerala Social Security Pension Limited (KSSPL), hasn't posted even a single line about the budget.

The KIIFB was redesigned to make off-budget borrowings and invest in the same for development in Kerala. And KSSPL was founded to do off-budget borrowing and pay social security pensions. These entities have put Kerala's finance under stress. And when the borrowings crossed certain financial limits, the union government intervened and put on certain constraints. The Union government said that off-budget borrowings should be considered state debt, which has put it in a dire financial situation forcing Balagopal to hike taxes. In short, Balagopal had no choices too.

Rejimon Kuttappan is an independent journalist and author of Undocumented-Penguin 2021. Views are personal and do not represent the stand of this publication.