Informist, Monday, Sep 23, 2024
--Kerala minister: States need more flexibility in spending choices
--CONTEXT: Kerala Finance Minister Balagopal's comments in interview
--Kerala minister: States must be able to spend to meet local needs
--Kerala minister: To ask Fin Commission to form climate change group
--Kerala minister: Fin Commission must consider climate change impact
--Kerala minister: Want states' tax devolution shr at 50% vs 41% now
By Priyasmita Dutta and Krity Ambey
NEW DELHI – Seeking more funds from the Centre is just half the battle state governments currently face. The other half is about the flexibility to tailor the use of those funds for the unique requirements of each state, Kerala's Finance Minister K.N. Balagopal said. His comments come before the state makes its recommendations to the 16th Finance Commission, with the minister saying Kerala will call for an increase in the states’ share of taxes to 50% from 41% at present.
Kerala will meet the 16th Finance Commission in December, with the Arvind Panagariya-led panel expected to submit its report for the five years starting 2026-27 (Apr-Mar) by the end of October 2025.
But Balagopal wants more than just a bigger slice of the cake; he wants flexibility on how to spend that money. “In Kerala, we have some issues which may be different from Delhi or Maharashtra or Tamil Nadu or Karnataka," he told Informist in an interview.
According to him, the two primary categories of funds from the Centre--tax devolution based on finance commission recommendations and Centrally Sponsored Schemes--don’t suit Kerala's financial and ecological requirements, with states having to foot much of the bill for central schemes that may not even be relevant to them.
“For Centrally Sponsored Schemes, earlier it was 100?ntre-aided, then 90?ntre-aided, then 70?ntre-aided," he said. "Now it’s 50-50?ntre- and state-aided. And in some cases, states have to spend more. The problem is they are giving funds which are not necessary for us because we have already achieved (those goals). Instead, we need funds for other advanced issues. So this possibility should be there.”
To accommodate the 14th Finance Commission’s recommendation that the share of states in the divisible pool of Union taxes be raised to 42% from 32%, the Indian government restructured the central grants to states. This involved an end to funding for 39 central schemes, with another 20-odd schemes requiring larger contributions from states.
Balagopal cited the Centre’s Jal Jeevan Mission as an example, saying abundant rain and the presence of drinking water wells in Kerala meant the scheme was not as important for the state as it might be for some others.
“They are allowing us to spend up to 200-300 bln rupees on it," he said. "We can take 400 bln rupees for five years for Jal Jeevan Mission, and we don't need that project. We don't need such big pipelines... So these kinds of ready-made schemes cannot work well for all states in a country like India."
Rather than drinking water and sanitation, the Kerala government’s big headache is the state's ageing population. “On a pan-India basis, people who are around 60 (years old) are 7%... We are going to reach 20% soon. The old-age population needs a lot of special care. So this may not be a problem in many states, but here it is,” he said.
TWIN TROUBLES
Kerala is seemingly battling two troubles at once. One, its share in the horizontal devolution--or the distribution of money between states--is on the decline, having come down from 3.9% as per the 10th Finance Commission’s recommendation to 1.9% in the 15th Finance Commission. At the same time, it is having to fight a new enemy it can’t do much about--climate change. Balagopal said Kerala's long coastline and changing weather conditions pose risks to the economy. As such, climate- and forest-related issues, as well as issues of migration, will be raised in the state's discussions with the Finance Commission later this year.
"We will suggest a special group on climate change (be set up) because climate change is a very big issue for Kerala and some other states," Balagopal said. "We have a huge percentage of forest cover. More than 35% is forest and plantations. Even though it is not accounted as forest, it is like forest. So, 50% of the land may be green cover.”
Money is split between states on the basis of several factors that are assigned certain weights. As per the 15th Finance Commission, the criteria and their weights are: population (15.0%), demographic change (12.5%), area (15.0%), forest cover (10.0%), income distance (45.0%), and tax effort (2.5%).
Kerala's economy has faced a series of calamities in recent years, including floods, landslides, and outbreaks of viral diseases.
All in all, the demand for more funds from the Centre--as well as the recent petition in the Supreme Court seeking relaxation of the state's borrowing limit--paints a grim picture of Kerala's finances. For 2024-25, it is targeting a fiscal deficit of 3.4% of Gross State Domestic Product, with capital expenditure at just 157 bln rupees--less than a tenth of the revenue expenditure and nearly half of what it spends on servicing its debt.
In such circumstances, the 16th Finance Commission is a potential trump card for Kerala. To build support, the state government held a day-long ‘fiscal conclave’ earlier this month that was attended by finance ministers from five opposition-ruled states. End
Informist Media Tel +91 (11) 4220-1000
Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2024. All rights reserved.