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Rising fiscal liabilities of Kerala threaten growth: CAG

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`The Government should strive, in the years to come, to reduce revenue deficit and fiscal deficit by additional resource mobilisation.'

Thiruvananthapuram , Feb. 16

THE rising fiscal liabilities of the Kerala Government are coming in the way of sustained growth and development of the State in the medium to long term, according to the report of the Comptroller and Auditor-General of India (CAG) for the year ending March 31, 2005.

The fiscal liabilities of the State increased by 70 per cent during 2000-05 and stood at Rs 43,697 crore in 2004-05. This was 3.2 times of the revenue receipts, says the report.

During the year, the fiscal liabilities were nearly 44 per cent of the Gross State Domestic Product (GSDP).

Revenue receipts up: The revenue receipts grew by 14.3 per cent to Rs 13,500 crore from Rs 11,815 crore in the previous year. The revenue expenditure grew by only 10.8 per cent, which resulted in a marginal reduction in the revenue deficit that stood at Rs 3,669 crore as compared to Rs 3,680 crore in the previous year.

The contribution of the State's own taxes in its revenue receipts declined to 66.4 per cent from 68.5 per cent in 2003-04. At the same time, the contribution of Central tax transfers and grant-in-aid increased to 27.5 per cent from 24.7 per cent in the previous year.

Sales tax was the major source of the State's own tax revenue with 75 per cent, followed by State excise (eight per cent) and taxes on vehicles (seven per cent).

During the year, the revenue expenditure constituted 95.1 per cent of the total expenditure. On an average, capital expenditure formed only 4.3 per cent during the five years between 2000 and 2005.

Large revenue and fiscal deficits year after year showed continued macro fiscal imbalances. Though its is not uncommon for the State to borrow for widening its infrastructure and for creating income-generating assets, an ever increasing ratio of fiscal liabilities to GSDP with large revenue deficit could lead the State finances to a debt trap, warns the report.

Salary, pension expenses rise: The committed expenditure on pension, interest and salaries constituted 99 per cent of the revenue receipts in 2004-05, indicating the paucity of resources available for socio-economic developmental activities.

Salary expenditure during the year increased by six per cent over the level in the previous year and accounted for 40 per cent of the revenue of the State as compared to 43 per cent in the previous year.

Expenditure on salaries had increased by 20 per cent from Rs 4,451 crore in 2000-01 to Rs 5,336 crore in 2004-05.

Pension payments rose by 34.8 per cent from Rs 1,929 crore in 2000-01 to Rs 2,601 crore during the year under review. With the increase in the number of retirees and improved longevity, the pension liabilities are likely to rise further in the coming year. On the other hand, the Government has not constituted any fund to meet the fast rising pension liabilities, notes the report.

Interest payments, in absolute terms, increased by 60 per cent from Rs 2,258 crore in 2000-01 to Rs 3,613 crore in 2004-05. This was primarily due to the continued reliance on borrowings for financing the fiscal deficit. Interest payments formed 27 per cent of revenue receipts in 2004-05 as against 18 per cent as recommended by the Eleventh Finance Commission.

The report says that the Government should strive, in the years to come, to reduce revenue deficit and fiscal deficit by additional resource mobilisation through tax reforms, compression of non-developmental revenue expenditure and prudent debt management. This is necessary to achieve the target of zero revenue deficit and fiscal deficit of two per cent of GSDP by March 2007 as envisaged in the Kerala Fiscal Responsibility Act, 2003.

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