A deceptive budget during pandemic

By - Jose Sebastian

In ordinary times, the budget that FM

Thomas

presented would have been dubbed an election stunt as it is littered with welfare and development schemes unmatched by serious attempts at public resource mobilization. Yet, the budget generates considerable hope and expectations among a wide spectrum of the populace.

The reason is not difficult to fathom. The distribution of free kits and medical treatment through government hospitals during the past few months have created an

illusion

that this government is capable of delivering even more. Budget announcements like free kits, increase in welfare pensions from Rs1,500 to Rs 1,600 and announcement of 10kg rice at Rs15 to blue and white ration card holders, employment guarantee scheme have further strengthened this mindset.

While most announcements will be carried out, the vast majority will miss the target due to paucity of funds. If one carefully analyses the schemes, it will be evident that several are ‘cut and paste’ from past budgets. Rarely, this is brought out by media and academics even in a fully literate and politically vibrant state like Kerala.

The discipline of public finance explains this phenomenon as ‘fiscal illusion’, a mindset created by

heavy dependence

on

indirect taxes

and debt financing. Government is not perceived as an entity financed by the people in the form of tax and non-tax sources. This leads to inexorable demands for public goods of various kinds. The political class is never interested in taking people out of this illusion for obvious reasons; it is in their interest to keep the people in good humour.

Of course, the arguments in favour of welfare are compelling especially in the backdrop of the pandemic. But the same objectives can be achieved through better targeting. Take the case of food kits. There is wastage of scarce resources when kits are given to everyone.

Schemes announced to tap the potential of ICT for the youth is laudable. There are several schemes to promote entrepreneurship. This is a welcome change considering that entrepreneurship was looked down upon by Previous Left governments. Despite several initiatives, Kerala’s rank in ease of doing business has only gone down.

The single most important pitfall of the budget is the failure at public resource mobilization and Isaac has not made serious attempts in this direction after becoming FM. Almost 67% of borrowed funds in budget process are used for financing revenue expenditure. For infra development, he is dependent on

KIIFB

. Will the investment in infra translate into higher economic growth and fiscal resources? This is a million dollar question considering that Kerala runs the risk of sliding into a debt trap.

In the process an impression is deliberately being created that the state lacks fiscal capacity. This is far from true. Kerala tops in per capita consumer expenditure from 1990-2000. But, it mobilises 60% of state’s own revenue from liquor, lottery, petrol and motor vehicles.

The ever-increasing dependence on liquor and lottery is one of the major reasons behind the immiserization of poor and marginalized sections. Welfare schemes seem to compensate only a portion of the public resources siphoned off from them. The middle class and rich thrive at the expense of this class.

The inescapable conclusion is that the budget sends wrong messages to the people and this doesn’t augur well for the future.

(The writer is a former senior faculty at Gulati Institute of Finance and Taxation)