KERALA finance minister TM Thomas Issac tabled a White Paper on the state’s finances in the Assembly on June 30, stating the situation was “alarming” and the government is striving hard to meet its day-to-day expenditure. Besides the day-to-day challenge of keeping the treasury afloat to meet the routine expenditure of the administrative machinery, Kerala was constantly facing grave paucity of resources for financing all its other plans and capital expenditure, the report said, adding the state has been living on a “financial lie”. There is a need to ensure 20-25 per cent annual growth in tax collection for the next five years.

Issac said that for a state holding negative cash balance, it was an impossible task to take on immediate and short-term liabilities of over Rs 10,000 crore. According to the White Paper, the closing balance of the state on March 31 was pegged at Rs 1,643.99 crore, but payments to the tune of Rs 1,800 crore were blocked at the treasury. This resulted in the state maintaining a negative cash balance of Rs 173.46 crore. The state has to discharge immediate liabilities amounting to Rs 6,302 crore and major unbudgeted short-term liabilities of Rs 4,326 crore. It is a tall challenge to take on the total liabilities amounting to Rs 10,628 crore. It points to the fact that the previous government of the Congress-led UDF has bequeathed on the state a list of unsupported promises which had to be borne by the new government.

In the last three years, budgetary exercise was “fudging of accounts”, Issac told reporters. Schemes and projects were announced without the required funds to back them up. The annual plan size during this period had been fixed at about 10-15 per cent beyond the state's estimated capacity, the minister said. In the process, unfortunately, budgets have lost their sanctity and budget speeches have become exercises in conjuring up unachievable of schemes and projects, he claimed.

Kerala was also unable to reduce revenue expenditure beyond a certain extent due to commitments in the social sector. However, the minister said, government would check non- plan revenue expenditure which was necessitated as the previous government had announced various projects which were not included in the budget and were sanctioned as “outside the agenda” by the cabinet.

The White Paper said efforts would be made to galvanise tax collection machinery in all departments, mainly in commercial taxes, motor vehicles, registration, revenue and excise. Kerala would have to gear up its tax machinery and ensure that growth rates in tax collection are sustained at 20-25 per cent per annum for the next five years. “There is no escape from this conclusion, given the limited range of fiscal choices available to the state,” it said.

The state also could not achieve the incentives mentioned in the XIV Finance Commission award for sound financial management. Imprudent financial management cost the state Rs 3,000 crore a year on this score, Isaac said.

Talking to reporters after tabling the White Paper in the Assembly, he said major policy prescriptions have been planned to restore the image of the state exchequer so that it would not affect the resource generation plans. Much of the wasteful expenditure was cleared out of agenda at the Cabinet meetings. The CPI(M)-led Left Democratic Front government has decided to do away with the out-of-agenda system to curb wasteful expenditure, he said.

The government would not adopt a laidback approach but would focus on boosting investment and put in place a credible mechanism for attracting investments. A course of action would be built around the government’s policy commitment to increasing outlays on welfare pensions, support for workers in traditional industries sector and maintenance of public infrastructure. Savings from fiscal consolidation will reflect in enhanced capital expenditure, he said. The erstwhile state government is understood to have ignored warnings of the finance department on the treasury opening with negative cash balance in 2014 and the need to restrict revenue expenditure to ward off an irreversible crisis.

One of the main recommendations was to launch an intensive revenue recovery drive in all districts under the aegis of the district collectors and also a special initiative to vacate all stay orders on revenue recovery and tax assessments. Periodical reviews at different tiers were also mooted to monitor the progress after implementation of the recommendations.