Kerala’s budget for 2025-26 was presented in the context of a growing state state.
The total disbursement is budgeted to grow 14% of the reviewed estimates (RE) in the next financial year. Re for the current year, it shows doubts about all budgeted figures, since they show a significant variation of budget estimates (BE). For example, the budget size has been reduced to ₹ 1,78,771 million rupees (re) of ₹ 1,84,327 million rupees (BE). This despite a slidingIn fiscal deficit of budgeted 3.4% to 3.51%. The participation of central taxes increases by ₹ 1,668 million rupees, while the subsidy in aid has fallen into ₹ 3,686 million rupees. What should be taken into account is a dramatic fall in capital disbursement from ₹ 5,680 million budgeted rupees to a scarce ₹ 669 million rupees!
In this context of the decrease in capital spending, it is difficult to take seriously the ads of the Minister of Finance in Investment Projects. Continuing with a state -directed development approach will take Kerala to deeper crises. The way to follow for the State is to make massive reforms to attract private capital. This private capital does not disagree with the welfare state is clear because of the experience of the Nordic countries with which we often relate to.
Again, the investment that is cut by offering too many concessions is not sustainable or high quality. High quality investors prefer destinations characterized by transparency, responsibility, harmony and, above all, good governance. Therefore, we must spend our energies on putting our house in order instead of pursuing capital.
Will hurt common people
The government seems to be desperate to mobilize income. The increase in land tax and electric vehicle tax are tips for that. The Earth Tax will damage common people and a greater tax on electric vehicles will slow down the green transition. The government must try to rationalize the collection of GST and recover several fiscal installments. Ultimately, income growth is only possible with faster growth in the economy.
The weak point of Kerala here is that it does not have a mega city. The mega cities with per capita income and economic activity above a threshold level will enjoy agglomeration economies, which will attract investment and talent. We have not allowed any of our urban centers to cross that threshold. It is urgent that at least one city in Kerala grows at that scale. The ‘Special Development Zone’ announced by the Minister of Finance in its last budget could have started this. You can give a special approach to the service sector for this growth, since our endowments favor it.
Ads on foreign and private universities were missing in the budget. A state that dreams of becoming a knowledge society that keeps competition in higher education at bay is curious. In fact, young people and new entrepreneurs in Kerala are a safe lot and are globally competent. They only need the right environment to discover their genius.
Institutional reforms
That points to the need for institutional reforms. Institutions refer to laws, customs, norms, regulatory framework, etc. In a society. The Malayalees flee to societies with a pleasant institutional framework to lead a better life. Such societies are characterized by competition. It is time for us to make such institutional changes here.
As the finance minister had no fiscal space, he could have submitted reforms that do not cost much and would also have attracted young voters! The minister lost that opportunity that could have helped the economy “take off” in the coming years.
(Emmanuel Thomas is the head of the Department of Economy at St. Thomas College (Autonomous), Thrissur)
Published – February 7, 2025 11:37 pm ist
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