THIRUVANANTHAPURAM: The second report of Kerala Public Expenditure Review Committee (KPERC) has warned that the new targets set by Fiscal Responsibility and Budget Management (FRBM) Review Committee would impose huge burdens on the state, perhaps more than any other state in the country. If the recommendations are accepted, the report states that the state will have no choice but to drastically cut down expenditure. The FRBM Review Committee, which submitted its report last year, has recommended massive correction in both fiscal deficit and outstanding debt. It states that the FD should be compressed to 1.70 percent of the gross state domestic product by 2022-23; the budgeted FD for 2018-19 is 3.10 percent.
Though finance minister Dr T M Thomas Isaac has promised to enforce strict financial discipline, his FD estimate for 2020-21 is still 2.91 percent. As for debt control, the FRBM review committee states that the outstanding debt should be shrunk to 20 percent of the GSDP by 2022-23. At the moment, it is 30.70 percent of the GSDP. By the conservative fiscal policies he intends to put in place, Isaac hopes to make only a marginal dent by 2020-21, a dip to 29.7 percent.
The KPERC report states that the high FD and debt stock of the state will make the realisation of the FRBM targets daunting for the state. “The adjustment path suggests that the correction required would place a relatively higher burden on Kerala vis-à-vis other States in the country given the fact that current FD and RD ratios for Kerala are already high,” the KPERC report noted. Also, the report notes that to achieve the 20 percent Debt to GSDP target by 2022-23 the state would have to take up more burden than the existing FRBM framework.
According to the KPERC report, the state has only two options if the FRBM recommendations are accepted. It should either have to drastically cut down overall expenditure or its revenues (abysmally low now) should become substantially more buoyant. Further, the report states that the government should ensure that the burden of this fiscal correction did not fall disproportionately on capital expenditure.
