Kerala fails to keep revenue and fiscal defict under check: audit report

Thiruvananthapuram: Kerala government had failed to achieve revenue and fiscal deficit targets envisaged under the Kerala Fiscal Responsibility (Amendment) Act, 2011 during the last four years, says the report of the Comptroller and Auditor General of India on State finances for the year ended March 31, 2015.

The Act came into force from November 8, 2011 with revised targets for fiscal stability by progressive elimination of revenue deficit and sustainable debt management. But non-realisation of estimated revenue receipt (estimated in the budget) led to non-achievement of revenue and fiscal deficit targets.

The resource gap (gap between incremental non-debt receipts and incremental total expenditure) was positive only in 2010-11 and since then it was negative, which indicated that incremental non-debt receipts were inadequate to finance incremental primary expenditure and incremental interest burden.

The analysis of the factors leading to primary deficit of the State reveals that since 2011-12 non-debt receipts (NDR) of the State were not enough to meet the primary revenue expenditure of the State. This indicates that even for meeting primary expenditure, Government has to depend on borrowed funds since 2011-12.

Revenue Receipts
Major share of State's total receipts (Rs. 79,306 crore) was Revenue receipts (Rs. 57,950 crore) which included Rs. 35, 232 crore of own tax revenue. While revenue receipt recorded a growth rate of 18 per cent, growth rate of own tax revenue was only 10 per cent. Capital receipts increased by Rs. 1,545 crore due to increase in Public Debt receipts (Rs. 1.516 crore).

As in the previous year, taxes on Sales, Trade, etc was the main source of tax revenue of the State. However, revenue from State Excise decreased during 2014-15 as in 2013-14. Income from State Lotteries (Rs. 5,445 crore) was the major source of revenue under non-tax Revenue, but equally high expenditure towards payment of prize, commission, etc., resulted in net yield of only Rs. 960 crore.

Revenue Expenditure
Total expenditure of the State, the report says, almost doubled during the last five years and share of revenue expenditure in total expenditure was above 90 per cent during the last four years and it was highest (93.5 per cent) during 2014-15. This shows low priority of the State Government in Capital Expenditure. In revenue expenditure, share of non-plan revenue expenditure was the maximum (above 86 per cent during the last five years) and more than 60 per cent of the revenue expenditure was incurred on salaries, wages, pension payments and interest payments. Out of the above, liability on interest payments showed a higher growth due to mounting of liability in open market borrowings.

Capital Expenditure
Capital expenditure on development showed a declining trend since 2012-13. During 2014-15, capital expenditure on development was Rs. 26 crore less than the previous year.

Loans and advances
The total outstanding loans and advances as on March 31, 2015 increased by Rs. 619 crore compared to the previous year. The major disbursement of loans during the current year was given to the Kerala State Road Transport Corporation (Rs. 266 crore), Kerala Water Authority for implementing the Water Supply Project assisted by the Japan International Co-operation Agency (Rs. 53 crore) and Kerala Urban and Rural Development Finance Corporation (Rs. 25 crore). Interest received against these loans remained less than one per cent during the period 2010-11 to 2014-15 and was only 0.2 per cent during 2014-15 as against the cost of borrowing of 7.3 per cent during the year, it says.

Quality of Expenditure

Though, above 50 per cent of the total expenditure was incurred on development expenditure, major share of it was for revenue expenditure which indicated low priority for capital development expenditure. As of 31 March 2015, the State Government had invested Rs. 6,085.13 crore in Statutory Corporations, Government Companies, Joint Stock Companies and Co-operatives and against this investment average return during the last five years was 1.5 per cent while the Government paid an average interest rate ranging from 7.1 per cent to 7.3 per cent on its borrowings.

Similarly, repayment during the year against the outstanding loans and advances (Rs. 12,332 crore) released by the State Government was Rs. 151 crore (principal: Rs. 124 crore and interest: Rs. 27 crore) only.

Debt Management
Fiscal liabilities of the State increased from Rs. 1,24,081 crore in April 2014 to Rs. 1,41,947 crore at the end of March 2015. This liability as a percentage of GSDP was 31.4 per cent which is higher than the target (29.8 per cent) fixed in the Kerala Fiscal Responsibility (Amendment) Act, 2011.

Share of market loans in overall fiscal liabilities increased and it was more than 50 per cent at the end March 2015. The debt maturity profile of the State shows that 44.1 per cent (Rs. 42,362.01 crore) of the debt has to be repaid within seven years.

As the non-debt receipts of the State were insufficient, some portion of the borrowed funds was used for bridging the revenue gap. During 2014-15, total borrowals under ‘Public Debt’ were Rs. 18,509 crore (including open market borrowings of Rs. 13,200 crore). After providing for interest and repayment of principal, the net availability was only Rs. 5,365 crore, the report notes.