Financial imbalance in Kerala is state-aided, says CDS study
By Jays Jacob | 24 Dec 2002
Thiruvananthapuram:
The financial crisis in Kerala is largely the result of
a state-aided undermining of resource mobilisation, says
a study by Dr Ravi Raman, an associate fellow at the Centre
for Development Studies (CDS) here.
Raman notes that the fiscal imbalance, described as ‘crisis’ by the government, is not economy-induced, but rather state-aided, -generated or -patronised. “Powerful interest groups are allowed to go on without paying their dues to the government.”
Contrary to the trend in the early 1980s, the Kerala economy registered a revival from the late eighties, and stayed above the all-India average until the mid-nineties. Though it couldn’t maintain this tempo, the economy is still performing well.
This, despite the aberrations created in the cash crop sectors owing to trade agreements such as the WTO and the India-Sri Lanka free trade pact, the declining trend in the devolution of revenues to the state, and the successful implementation of the statutes of the revised pay commission. “So, poor resource mobilisation is not the result of the slump in the economy,” maintains Raman.
The increase in the revenue deficit of states, he notes, is matched by the reduction in transfers from the central government. The central assistance and current transfers to Kerala as a proportion of net state domestic product (NSDP) declined from 10.43 and 6.62 in 1991-92 to 5.91 and 4.09, respectively, in 1999-2000. Had the state been able to bargain with the centre to get the same level of transfers, its deficit position would not have deteriorated.
To add more woes, powerful social structures in the state have remained more or less non-contributory to the state exchequer. They include groups of large traders, owners of luxury hotels, big planters, gold merchants, liquor barons, forest contractors and others. Huge amounts of accumulated funds remain frozen, leading to what could be called a state-aided or -patronised liquidity crisis. Besides, there is a continuous derailment of resource mobilisation in the state, which is largely state-patronised, he added.
Increasing amounts of revenue are locked up in various revenue-generating sectors of the economy owing to underassessment of tax, incorrect computation of agricultural income-tax, exclusion of income from assessment, including those of luxury hotels and bars, and non-realisation of proper value in forest produce, and so on. The locked-up funds worked out is more than Rs 1,000 crore. Raman says this is in addition to the huge arrears of tax (around Rs 1,700 crore).
The non-implementation of revised lease rents in plantations leads to large revenue losses. Under both Quit Rent and Lease Rent, the actual rent is abysmally small and there is absolutely no uniformity in rent collection across the planting companies. For instance, while Tata Tea, the largest integrated plantation in the world with its 50,000 acres, pays Rs 50 an acre, there are estates paying just Rs 25 an acre. AV Thomas & Company pays a mere Rs 5.30 an acre, Raman says.
The total locked-up funds in various state departments, including cumulative arrears, works out to around Rs 3,600 crore, an amount almost equivalent to the ADB loan. Unlocking the locked-up funds alone would make Kerala a surplus state.
