‘Crisis faced by Kerala an opportunity for fiscal consolidation’: Dr Jose Sebastian

By Express News Service

In the wake of the continuing monetary crunch confronted by Kerala, Dr Jose Sebastian, an professional in public finance and taxation, speaks to TNIE on the disaster and potential options. Dr Sebastian can also be a former college member of the Gulati Institute of Finance and Taxation, Thiruvananthapuram. 

How do you view the newest bout of fiscal disaster Kerala goes by way of?
I wish to view this as a chance, similar to the saying ‘every threat is an opportunity’. For Kerala, fiscal disaster is nothing new. It dates again to the mid Nineteen Eighties. Dr Okay Okay George (economist) wrote the well-known paper “Kerala’s Fiscal Crisis: A Diagnosis” in 1990. Though he arrived at a flawed analysis, there started critical tutorial engagements on Kerala’s persisting disaster. It is excessive time Kerala fixes it. So, this is a chance. 

Don’t you suppose the disaster is a results of Centre’s unfair slashing of Kerala’s proper to avail the permitted borrowing?
Kerala was warned again and again that it can not borrow past the bounds set by the fifteenth Finance Commission. Instead of mobilising sources or reducing down expenditure, what the state has been doing all alongside is to avoid this restrict left and proper.The Comptroller and Auditor General had warned towards off-budget borrowings like Kerala Infrastructure Investment Fund Board and Kerala Social Security Pension Ltd. The state ought to have taken corrective measures slightly than looking for ingenious avenues for incurring extra debt. 

But the Centre, which professes fiscal self-discipline to states, is itself violating the bounds of Fiscal Responsibility Budget Management (FRBM) Act?
Fiscal capability and mandates of the Centre are totally different from that of the states.The Centre has the mandate of guaranteeing fiscal and monitory stability of the nation. In a globalised situation, it has to think about financial traits the world over and its influence on nation’s steadiness of cost and stability of the foreign money. Domestic useful resource mobilisation and expenditure insurance policies must be tailor-made to those developments. This warrants occasional deviations from the fiscal roadmap of FRBM Act. Besides, the fiscal capability of the Centre is gigantic. While the Centre may be allowed occasional deviations from the roadmap prescribed by the FRBM Act, states can not declare this liberty for granted. If all 29 states achieve this, the fiscal stability of the nation will likely be in jeopardy. 

What is the basis reason behind Kerala’s current precarious state of affairs?
It is nothing however the pay revision of 2021. Salary and pension expenditure which was Rs 46,671.14 crore in 2020-21 shot as much as Rs 71,392.86 crore in 2021-22. This enhance of Rs 24,721,71 crore or 52.97% is unaffordable for a state like Kerala which has been working deficits for many years. Its root trigger is the ruling class’ temptation to make sure a consecutive second time period. The state had sufficient causes to push back the displeasure of service organisations. If two floods and the pandemic weren’t adequate, there was the advice of the final pay fee that pay revision must be achieved as soon as in 10 years. 

What is the answer to the current deadlock?
Mobilising extra sources and an intensive restructuring of expenditure. Fiscal efficiency of 2022-23 reveals that if there’s strain, the state will put in effort to mobilise extra sources. On the opposite hand, there’s immense scope for saving sources by restructuring expenditure. Statutory pensions are more and more turning into unsustainable. In 2021-22, Kerala spent 23.06% of its whole income on pensions. The identical for 17 main states is simply 12.15%. My research has proven that if all statutory pensioners are introduced beneath National Pension Scheme (NPS), the pension burden may be introduced down by 50%. The financial savings can be utilized to lift the welfare pension from the current Rs 1,600 to Rs 4,544 per thirty days. This quantity will instantly attain the native market and revive financial actions on the native degree. The retailers mendacity closed now will open and it will in flip rejuvenate the products transport sector. This is adequate to unleash a virtuous cycle of financial progress and income enhance. The state will come out of recession and overcome fiscal disaster in a single shot.

Is it a workable proposition? Service organisations are demanding reintroduction of statutory pension for workers beneath contributory pension scheme?
I don’t suppose any authorities in Kerala can consider reverting to statutory pensions. LDF promised it in 2016 however even after seven years in energy, it couldn’t fulfil the promise. The authorities shouldn’t be even capable of pay DA arrears and pension arrears to the tune of Rs 20,000 crore. It will likely be suicidal to revert to the outdated pension scheme.

In the wake of the continuing monetary crunch confronted by Kerala, Dr Jose Sebastian, an professional in public finance and taxation, speaks to TNIE on the disaster and potential options. Dr Sebastian can also be a former college member of the Gulati Institute of Finance and Taxation, Thiruvananthapuram. 

How do you view the newest bout of fiscal disaster Kerala goes by way of?
I wish to view this as a chance, similar to the saying ‘every threat is an opportunity’. For Kerala, fiscal disaster is nothing new. It dates again to the mid Nineteen Eighties. Dr Okay Okay George (economist) wrote the well-known paper “Kerala’s Fiscal Crisis: A Diagnosis” in 1990. Though he arrived at a flawed analysis, there started critical tutorial engagements on Kerala’s persisting disaster. It is excessive time Kerala fixes it. So, this is a chance. 

Don’t you suppose the disaster is a results of Centre’s unfair slashing of Kerala’s proper to avail the permitted borrowing?
Kerala was warned again and again that it can not borrow past the bounds set by the fifteenth Finance Commission. Instead of mobilising sources or reducing down expenditure, what the state has been doing all alongside is to avoid this restrict left and proper.The Comptroller and Auditor General had warned towards off-budget borrowings like Kerala Infrastructure Investment Fund Board and Kerala Social Security Pension Ltd. The state ought to have taken corrective measures slightly than looking for ingenious avenues for incurring extra debt. googletag.cmd.push(operate() googletag.show(‘div-gpt-ad-8052921-2’); );

But the Centre, which professes fiscal self-discipline to states, is itself violating the bounds of Fiscal Responsibility Budget Management (FRBM) Act?
Fiscal capability and mandates of the Centre are totally different from that of the states.The Centre has the mandate of guaranteeing fiscal and monitory stability of the nation. In a globalised situation, it has to think about financial traits the world over and its influence on nation’s steadiness of cost and stability of the foreign money. Domestic useful resource mobilisation and expenditure insurance policies must be tailor-made to those developments. This warrants occasional deviations from the fiscal roadmap of FRBM Act. Besides, the fiscal capability of the Centre is gigantic. While the Centre may be allowed occasional deviations from the roadmap prescribed by the FRBM Act, states can not declare this liberty for granted. If all 29 states achieve this, the fiscal stability of the nation will likely be in jeopardy. 

What is the basis reason behind Kerala’s current precarious state of affairs?
It is nothing however the pay revision of 2021. Salary and pension expenditure which was Rs 46,671.14 crore in 2020-21 shot as much as Rs 71,392.86 crore in 2021-22. This enhance of Rs 24,721,71 crore or 52.97% is unaffordable for a state like Kerala which has been working deficits for many years. Its root trigger is the ruling class’ temptation to make sure a consecutive second time period. The state had sufficient causes to push back the displeasure of service organisations. If two floods and the pandemic weren’t adequate, there was the advice of the final pay fee that pay revision must be achieved as soon as in 10 years. 

What is the answer to the current deadlock?
Mobilising extra sources and an intensive restructuring of expenditure. Fiscal efficiency of 2022-23 reveals that if there’s strain, the state will put in effort to mobilise extra sources. On the opposite hand, there’s immense scope for saving sources by restructuring expenditure. Statutory pensions are more and more turning into unsustainable. In 2021-22, Kerala spent 23.06% of its whole income on pensions. The identical for 17 main states is simply 12.15%. My research has proven that if all statutory pensioners are introduced beneath National Pension Scheme (NPS), the pension burden may be introduced down by 50%. The financial savings can be utilized to lift the welfare pension from the current Rs 1,600 to Rs 4,544 per thirty days. This quantity will instantly attain the native market and revive financial actions on the native degree. The retailers mendacity closed now will open and it will in flip rejuvenate the products transport sector. This is adequate to unleash a virtuous cycle of financial progress and income enhance. The state will come out of recession and overcome fiscal disaster in a single shot.

Is it a workable proposition? Service organisations are demanding reintroduction of statutory pension for workers beneath contributory pension scheme?
I don’t suppose any authorities in Kerala can consider reverting to statutory pensions. LDF promised it in 2016 however even after seven years in energy, it couldn’t fulfil the promise. The authorities shouldn’t be even capable of pay DA arrears and pension arrears to the tune of Rs 20,000 crore. It will likely be suicidal to revert to the outdated pension scheme.