Monday, February 23, 2009

Please-all budget will push up Kerala's debt burden

BRP BHASKAR

EVERY Indian is born with a debt, thanks to deficit financing which has been the order of the day for many decades.

The Keralite's debt burden, already the heaviest, will increase substantially as a result of the populist measures in the budget presented last week.

Following in the footsteps of Union Minister Pranab Mukherji, who presented a please-all budget with an eye to the Lok Sabha elections, State Finance Minister TM Thomas Isaac proposed only soft measures to meet the challenge posed by the global meltdown.

To those below the poverty line, who will be hit hardest by the economic slowdown, he offered rice at Rs2 a kilogram. To the people of Malabar region which lags behind the rest of the state in many respects, he offered a Rs15-billion development package.

With all his kindness, Pranab Mukherji could not escape criticism from the opposition, that he did not enough. The United Democratic Front (UDF) has levelled the same charge against Thomas Isaac.

The previous UDF government had fixed the price payable by BPL families for a kilo of rice at Rs3. UDF spokesmen have argued that considering the current distress situation the Left Democratic Front (LDF) government should have fixed the price to Re1.

The UDF has termed the budget provision for migrants returning from the Gulf region as inadequate. Actually, what the minister presented as a rehabilitation package is nothing new. He merely made small financial provisions for them within the existing framework.

He offered Rs100 million to the newly created Non-Resident Keralites Welfare Fund to extend "at least a small assistance" to returning migrants. Only those coming back without completing two years of work in the Gulf region will be entitled to help.

He also provided Rs1 billion to the Kerala Financial Corporation (KFC) to support Gulf returnees who wish to set up industrial or commercial ventures.

KFC, the state's first public sector undertaking, provides financial assistance to small and medium enterprises. Over the past half-century, it disbursed over Rs30 billion to more than 40,000 units. However, its contribution to the state's economy has not been significant because of the high mortality rate of projects assisted by it.

A worrisome aspect of the budget is the wanton abandonment of the fiscal discipline that was bringing down the level of deficit financing in the past few years.

Along with other states, Kerala has been under pressure from the Centre to restrict deficit financing. Under the last UDF government, the fiscal deficit fell from 5.49 per cent of the state domestic product (SDP) in 2002-03 to 5.41 per cent in 2003-04, to 4.44 per cent in 2004-05 and to 3.70 per cent in 2005-06.

The trend continued for a year under the LDF, which came to power in 2006, with the fiscal deficit falling to 2.88 per cent of the SDP in 2006-07. Thereafter it started climbing again and stood at 4.11 per cent in 2007-08.

The public debt has risen steeply in the past decade under both the LDF and the UDF. In 1998-99, the state's debt was Rs157.00 billion. Before leaving office two years later, the LDF pushed it up to Rs239.19 billion.

Under the UDF, the public debt rose from Rs269.51 billion in 2001-02 to Rs 459.29 billion in 2005-06.

Returning to power in 2006, the LDF raised it further to Rs 498.75 billion in 2006-07 and to Rs554.10 billion in 2007-08.

The estimated figure for the last financial year is Rs616.53 billion.

The Economic Review, comparing the situation obtaining in the southern states in 2006, observed that the per capita debt burden in Kerala was Rs14,358, as against Rs8,555 in Karnataka, Rs8,605 in Tamil Nadu and Rs9,338 in Andhra Pradesh. The national average is about Rs9,176.

Since 2006, the state's debt has registered an increase of nearly 35 per cent. Factoring in this increase, the current debt burden on every Keralite may be estimated at about Rs19,000.

The Planning Board limited the comparison to the neighbouring states. But Kerala has left even Gujarat (Rs13,371 in 2008) and Punjab (less than Rs10,000) far behind in the matter of debt.

The state's reckless borrowing is a matter of worry because the government is unable to ensure productive use of funds. --Gulf Today, Sharjah, February 23, 2009.

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