THE development model of Kerala is well known to the world for its advancement in health and education sectors and welfare activities. The previous LDF government had taken constructive steps to enhance the quality of education and health care system, introduced welfare oriented activities and took steps to improve infrastructure facilities. The people of Kerala had recognised these interventions and voted in favour of LDF and it is the first time in the state that the LDF government has been elected for the second term in continuity, at a stretch. All these could be achieved by implementing an alternative policy of development. While the union government dismantled the Planning Commission, the state of Kerala had decided to continue the Planning system in the state. On the basis of this plan, the state legislature has passed the budget for every financial year.

Kerala, which accounts for 2.8 percentage of India’s population and 1.2 percentage of its land area, contributes more than 4 per cent to the GDP of India and its per capita income is 60 percentage higher than India’s average. Kerala’s GDP at constant prices grew by 12.01 percentage and industry and allied sector achieved a growth rate of 17.3 per cent in 2022-23. A decisive growth rate of 18.9 per cent has been achieved in the manufacturing sector.

Due to the improvements in education sector, lakhs of students have migrated from private unaided schools to government schools. The government has spent more than Rs 4000 crore for enhancing the infrastructure facilities in schools so as to elevate them as centres of excellence.  Thousands of teacher positions were created in schools due to the big jump in enrolment of students. The government medical colleges and hospitals are having all super specialities, including organ transplantation and open heart surgeries. Kerala is giving welfare pension of Rs 1600 each to more than 60 lakh people. While the union government had spent for land acquisition costs for widening national highways in all states, the Kerala government was  forced to spend 25 per cent of the land acquisition costs. These are some of the instances. All these demanded more resource mobilisation. But the powers of the state government for deciding the tax revenue had been ended after the introduction of the GST.

At the same time, the union government has drastically reduced the financial support to the state of Kerala. As per the latest report on state finance of Reserve Bank of India, states collected 37 per cent of general government taxes while spending 64 per cent of the total expenditure. The transfer of resources from centre to states takes place through three channels: tax devolution recommended by Finance Commission under Article 270; grants recommended by the Finance Commission under Article 275 and grants and loans from the centre to states outside the recommendations of the Finance Commission under Article 282 and 293 like support for centrally sponsored schemes and interest free loans to states for capital expenditure.  

Tax devolution to the state is decreasing in a drastic manner. The population as per the 2011 census and advancements in social sector are taken as criteria which adversely affect the welfare states like Kerala. The share given to the state has dropped to 1.9 per cent from 3.875 per cent (as decided by the 10th Finance Commission). The share for UP is 18 per cent and that is the highest among all the states. The share given to Bihar is 10.05 per cent, Madhya Pradesh is 7.85 per cent, West Bengal is 7.12 per cent, Maharashtra is 6.31 per cent etc. Kerala is in the group of states which is getting the lowest share, of around 1 per cent.

Besides this, the union government is purposefully trying to decrease the divisible pool by imposing cess and surcharges. Under Article 270 of the constitution, the revenue collected from both cess and surcharge are at the exclusive disposal of the union government. The revenue collected by the union government from cess increased from 6.4 per cent of its gross tax revenue in 2011-12 to 17.7 per cent in 2021-22, that is Rs 4,78,680 crores. If it was levied as taxes, then the state governments would get a share of this amount. De facto this is against the federal principle. The approach of the union government to the states which are ruled by non-BJP governments is worse. The real distribution to these states is curtailed by imposing new criteria.

When we look at the status of grants to the state of Kerala, we could see a declining trend. As per the Reserve Bank report, the total grants from the centre to the state of Kerala decreased to Rs 15,86,603 crores  in 2023-24 from  Rs 30,01,712 crores in 2021-22. Now a new scheme of branding is also used for denying funds to centrally sponsored schemes. For example, the government of Kerala is providing houses for all homeless people under the scheme LIFE. The state government is providing Rs 4 lakhs for each house and Rs 6 lakhs for Scheduled Tribe families.  The government has already handed over four lakh houses and one lakh houses are under construction. Out of this,  the union government is providing financial support of Rs 72,000 for 32,171 beneficiaries in panchayats and Rs 1.5 lakh for 79,860 beneficiaries  in municipalities and corporations. Now the union government is insisting on branding all these houses under the union government scheme PMAY (Pradhan Mantri Awas Yojana). The state government has taken a strong stand against these directives because it would compromise the dignity of the beneficiaries, as a safe living house is a basic right and not a gift. The state government  is not displaying any logo of LIFE on these houses also. Due to the stand taken by the state government, the union government is denying other central grants to the state. In addition to this, the union government has stopped the GST compensation to the states.

Fiscal federalism is facing serious challenges. The Kerala state’s own revenue is 78.7 per cent. Earlier it was 52 per cent and the rest was from the central support. But the state's own resources for Bihar are only 29.4 per cent  and for UP, it is 54 per cent, Madhya Pradesh, it is 51 per cent and West Bengal, it is 54.2 per cent. This reflects two things, the improvement in Kerala state’s resources and the decline of central support.

The important issue which the state of Kerala has questioned in the Supreme Court as per Article 131 of  the Constitution, is the unilateral approach of the central government towards fixing the borrowing limit of the state. As per Article 293, state legislatures have the power to fix the borrowing limit for the states. As per entry 43 of the state list, public debt is exclusively the right of the states. The union government does not have the constitutional right or authority to issue directives to the state government under Article 293 which have the potential to damage the federal structure by transgressing upon the exclusive financial domain of the state.

In accordance with Article 293, the state legislature passed Kerala Fiscal Responsibility Act 2003 and the borrowing limits or the extent of borrowing are regulated by this Act. But the union government is intervening to regulate this by several orders. It consists of imposing a net borrowing ceiling on the state in the manner deemed fit by the union government, which limits borrowing from all sources including open market borrowing; and two, further reducing the net borrowing ceiling by including aspects into the ‘borrowing’ of the state which otherwise are not ‘borrowing’ as per constitutional provisions. By these interventions, the state has suffered a cumulative loss or resource deficiency of Rs 1,07,513.09 crores over fiscal year 2016-23. Due to this, the state is not fulfilling the commitments in its annual budgets.  

While considering the impact of these components, in this financial year itself, the resource deficiency is very high. The reduction of state share from 3.89 percentage to 1.92 percentage, amounts to a reduction of Rs 18,000 crores. The stoppage of the GST compensation resulted in the shortage of Rs 12,000 crores and the denial for borrowing resulted in further shortage of Rs 19,600 crores. The cumulative effect is the resource deficiency of Rs 57,000 crores for a state having annual expenditure of around Rs 1.50 lakh crores.

This is an attack on the financial autonomy of the state and the basic structure of the constitution, that is federalism. That is why the Kerala cabinet has decided to stage a protest in the capital city of the country along with MLAs and MPs from Kerala. Before finalising the date of the protest, the chief minister of Kerala consulted with the opposition leader and deputy leader who are representing the Congress and the Muslim League respectively. But they are not ready to cooperate with the government by joining in the protest against the union government. They keep silent on the centre’s assault on the rights of Kerala. That is the character of the Congress leadership in the state of Kerala.

The chief minister of Kerala wrote a letter to all the chief ministers belonging to non-NDA ruled states  and to the leaders of the opposition parties to come and  speak in the  inaugural session of the agitation. This is a novel way of democratic protest of a state, not only for its own constitutional demands, but for the rights of all states in a federal structure.

(P Rajeeve is minister for industries, law, and coir in the Kerala government)