The Finance Minister, Dr. T. M. Thomas Isaac, presented the Budget for Kerala for financial year 2019-20 on January 31, 2019.
Budget Highlights
- The Gross State Domestic Product of Kerala for 2019-20 (at current prices) is estimated to be Rs 8,75,514 This is 13% higher than the revised estimate for 2018-19.
- Total expenditure for 2019-20 is estimated to be Rs 1,41,980 crore, a 13.9% increase over the revised estimate of 2018-19. In 2018-19, there is estimated to be a decrease of Rs 2,415 crore (1.9% of the budgeted estimate) of expenditure as per the revised estimate.
- Total receipts (excluding borrowings) for 2019-20 are estimated to be Rs 1,15,690 crore, an increase of 14.6% as compared to the revised estimate of 2018-19. In 2018-19, total receipts (excluding borrowings) are estimated to fall short of the budgeted estimate by Rs 2,144 crore (2.1%).
- Revenue deficit for the next financial year is targeted at Rs 8,770 crore, or 1% of the Gross State Domestic Product (GSDP). Fiscal deficit is targeted at Rs 26,291 crore (3% of GSDP).
- The sectors of Rural Development, Transport, and Welfare of SC/ST/OBC and Minorities saw the highest increase in allocations.
Policy Highlights
- Kerala Flood Cess: The GST Council had permitted the state to levy 1% cess on supply of goods and services for up to two years for rebuilding Kerala. Except gold, this cess will not be levied on goods with GST rate of 5% or below. Small dealers who have availed composition tax will be excluded from the levy of cess. For supply of goods which are taxed at 12%, 18% and 28%, and on all services, 1% flood cess will be imposed on the value of supply. An additional revenue of Rs 600 crore is expected through this cess.
- Tax proposals: Local bodies have been permitted to levy 10% entertainment tax on cinema tickets. The one-time tax on new motor cycles, motor cars, and private service vehicles used for private purpose will be increased by 1%. The tax rate on the first sale of foreign liquor will be increased by 2%.
- Infrastructure projects: Rs 1,000 crore has been earmarked for Rebuild Kerala initiative. An outer ring-road on the Parippally-Vengod-Aruvikkara-Vizhinjam route, and an allied growth corridor have been proposed around the Vizhinjam Port.
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Kerala’s Economy · GSDP: The growth rate of Kerala’s GSDP (at current prices) has increased from 9.6% in 2015-16 to 11.4% in 2017-18. · Sectors: In 2017-18, agriculture, manufacturing, and services contributed to 13%, 24% and 63% of the GSVA. These sectors grew by 10.9%, 9.1% and 10.8%, respectively. · Per capita income: The per capita GSDP of Kerala in 2017-18 (at current prices) was Rs 1,99,101. This is 10.9% higher than that in 2016-17. · Unemployment: According to the 5th Annual Employment-Unemployment Survey (2015-16), among the major states, Kerala has the highest unemployment rate at 12.5% as compared to the all-India level of 5%. |
Figure 1: Growth in GSDP and sectors in Kerala (year-on-year)
Sources: Kerala Economic Review 2018; MOSPI; PRS. Note: All numbers are as per current prices. Numbers for 2015-16, and 2016-17 are from MOSPI. Numbers for 2017-18 are quick estimates from the Kerala Economic Review 2018. |
Budget Estimates for 2019-20
- The total expenditure in 2019-20 is targeted at Rs 1,41,980 crore. This is 13.9% higher than the revised estimates of 2018-19. This expenditure is proposed to be met through receipts (other than borrowings) of Rs 1,15,690 crore and borrowings of Rs 26,265 crore. Total receipts for 2019-20 (other than borrowings) are expected to be 14.6% higher than the revised estimate of 2018-19.
Table 1: Budget 2019-20 - Key figures (in Rs crore)
|
Items |
2017-18 Actuals |
2018-19 Budgeted |
2018-19 Revised |
% change from BE 2018-19 to RE of 2018-19 |
2019-20 Budgeted |
% change from RE 2018-19 to BE 2019-20 |
|
Total Expenditure |
110,238 |
127,093 |
124,679 |
-1.9% |
141,980 |
13.9% |
|
A. Receipts (except borrowings) |
83,400 |
103,136 |
100,992 |
-2.1% |
115,690 |
14.6% |
|
B. Borrowings |
26,841 |
23,881 |
23,250 |
-2.6% |
26,265 |
13.0% |
|
Total Receipts (A+B) |
110,241 |
127,018 |
124,242 |
-2.2% |
141,955 |
14.3% |
|
Revenue Deficit |
16,928 |
12,860 |
13,027 |
1.3% |
8,770 |
-32.7% |
|
As % of GSDP |
2.46% |
1.66% |
1.68% |
1.00% |
||
|
Fiscal Deficit |
26,837 |
23,957 |
23,686 |
-1.1% |
26,291 |
11.0% |
|
As % of GSDP |
3.91% |
3.10% |
3.06% |
3.00% |
||
|
Primary Deficit |
11,717 |
9,019 |
8,060 |
-10.6% |
9,089 |
12.8% |
|
As % of GSDP |
1.71% |
1.17% |
1.04% |
|
1.04% |
|
Notes: BE is Budget Estimate; RE is Revised Estimate. GSDP for 2019-20 is Rs 8,75,514 crore. GSDP for 2018-19 BE and 2018-19 RE taken to be Rs 7,72,894 crore, and Rs 7,74,995 crore respectively.
Sources: Kerala Budget Documents 2019-20; PRS.
Expenditure in 2019-20
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Committed liabilities of a state typically includes expenditure on payment of salaries, pensions, and interest payments. A larger proportion of state budget allocated for committed expenditure crowds out other developmental expenditure. Kerala spends the third highest on committed liabilities (55% of its budget). States, on average, spend 39% of their budget on committed liabilities. In 2019-20, the committed liabilities of the state are Rs 68,941 crore. This is a 3% increase from the revised estimate of 2018-19. |
- Capital expenditure for 2019-20 is proposed to be Rs 17,855 crore, which is an increase of 53.3% over the revised estimates of 2018-19.
- Capital expenditure includes expenditure affecting the assets and liabilities of the state, such as: (i) capital outlay, i.e. expenditure which leads to creation of assets (such as bridges and hospitals), and (ii) repayment and grant of loans by the state government.
- Kerala’s capital outlay for 2019-20 is estimated to be Rs 16,269 crore, which is 66% higher than the revised estimate of 2018-19. The capital outlay towards rural development is estimated to increase by Rs 1,429 crore (an increase of 262%) from the revised estimates of 2018-19.
- Revenue expenditure for 2019-20 is proposed to be Rs 1,24,125 crore, which is an increase of 9.8% over revised estimates of 2018-19. This expenditure includes payment of salaries, maintenance, etc.
Table 2: Expenditure budget 2019-20 (in Rs crore)
|
Items |
2017-18 Actuals |
2018-19 Budgeted |
2018-19 Revised |
% change from BE 2018-19 to RE 2018-19 |
2019-20 Budgeted |
% change from RE 2018-19 to BE 2019-20 |
|
Capital Expenditure |
10,289 |
11,432 |
11,645 |
1.9% |
17,855 |
53.3% |
|
of which Capital Outlay |
8,749 |
10,330 |
9,811 |
-5.0% |
16,269 |
65.8% |
|
Revenue Expenditure |
99,948 |
115,661 |
113,034 |
-2.3% |
124,125 |
9.8% |
|
Total Expenditure |
110,238 |
127,093 |
124,679 |
-1.9% |
141,980 |
13.9% |
|
A. Debt Repayment |
13,132 |
14,832 |
18,007 |
21.4% |
17,739 |
-1.5% |
|
B. Interest Payments |
15,120 |
14,938 |
15,626 |
4.6% |
17,201 |
10.1% |
|
Debt Servicing (A+B) |
28,252 |
29,770 |
33,633 |
13.0% |
34,940 |
3.9% |
Note: Capital outlay denotes expenditure which leads to creation of assets.
Sources: Kerala Budget Documents 2019-20; PRS.
Sector expenditure in 2019-20
The sectors listed below account for 46% of the total budgeted expenditure of Kerala in 2019-20. A comparison of Kerala’s expenditure on key sectors with that by other states can be found in the Annexure.
Table 3: Sector-wise expenditure for Kerala Budget 2019-20 (Rs crore)
|
Sector |
2017-18 Actuals |
2018-19 Budgeted |
2018-19 Revised |
2019-20 Budgeted |
% change from RE 2018-19 to BE 2019-20 |
Budget provisions for 2019-20 |
|
Education |
19,043 |
20,528 |
19,736 |
21,089 |
7% |
· Rs 927 crore has been allocated towards Sarva Shiksha Abhiyan. · An amount of Rs 529 crore has been sanctioned for the Mid-Day Meal Scheme. |
|
Agriculture and allied activities |
6,230 |
8,040 |
7,390 |
7,980 |
8% |
· Rs 2,500 crore will be spent to rejuvenate agriculture post floods. |
|
Health and Family Welfare |
6,482 |
7,178 |
7,065 |
7,227 |
2% |
· Rs 2,498 crore has been allocated for urban health services, and Rs 883 crore has been allocated for rural health services. |
|
Transport |
5,698 |
5,430 |
5,639 |
7,142 |
27% |
· Rs 1,213 crore has been allocated towards road transport. |
|
Rural Development |
1,961 |
5,150 |
2,443 |
6,674 |
173% |
· Rs 2,928 crore has been allocated towards the Mahatma Gandhi National Rural Employment Guarantee Programme. |
|
Social Welfare and Nutrition |
6,167 |
4,506 |
3,547 |
4,022 |
13% |
· Rs 1,407 crore has been allocated towards child welfare. |
|
Police |
3,538 |
3,985 |
3,674 |
3,991 |
9% |
· Rs 152 crore has been allocated for the modernisation of police force. |
|
Water Supply, Sanitation, Housing and Urban Development |
1,143 |
4,278 |
3,554 |
3,712 |
4% |
· Rs 400 crore has been allocated towards Smart City Mission, and Rs 500 crore for AMRUT. |
|
Welfare of SC/ ST/OBC and Minorities |
2,904 |
3,232 |
2,847 |
3,266 |
15% |
· In the Budget Speech, an amount of Rs 1,296 crore was announced for housing complexes for landless and homeless people. |
|
% of total expenditure |
48% |
49% |
45% |
46% |
|
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Source: Kerala Budget Speech 2019-20, Kerala Annual Financial Statement 2019-20, Kerala Demand for Grants 2019-20; PRS.
Grants-in-aid and contributions to local governments: The state government provides compensation and assignments to local bodies and Panchayati Raj institutions. In 2019-20, this amount is estimated to be Rs 9,948 crore. This is a 33% increase from the revised estimates of 2018-19. The table below shows the past trends in grants given to local governments, and their development expenditure.
Table 4: Development expenditure by Local Governments as a share of grants-in-aid
|
Year |
Grants to Local Governments |
Development expenditure of Local Governments |
Share of grants used for development expenditure |
|
2011-12 |
3,389 |
2,714 |
80% |
|
2012-13 |
4,017 |
3,203 |
80% |
|
2013-14 |
4,971 |
4,012 |
81% |
|
2014-15 |
6,397 |
5,267 |
82% |
|
2015-16 |
3,903 |
3,061 |
78% |
|
2016-17 |
5,481 |
4,183 |
76% |
|
2017-18 RE |
6,012 |
4,565 |
76% |
|
2018-19 BE |
9,130 |
7,563 |
83% |
Note: BE is Budget Estimate; RE is Revised Estimate.; Sources: Kerala Economic Review 2018; PRS.
Receipts in 2019-20
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In 2018-19, the state government’s own revenue (both tax and non-tax) are expected to decline. While the tax revenue is expected to decline by 9.4%, non-tax revenue is expected to decline by 9%. Decline in tax revenue is driven by lower GST collections (a decrease of Rs 4,179 crore from the budget estimates of 2018-19). In 2018-19, grants from the central government increased by almost 40% from the budget estimates. Rs 2,100 crore of this increase is the GST compensation provided by the centre. |
- The total revenue receipts for 2019-20 are estimated to be Rs 1,15,355 crore, an increase of 15.4% over the revised estimates of 2018-19. Of this, Rs 80,855 (70% of the revenue receipts) crore will be raised by the state through its own resources, and Rs 34,500 crore (30% of the revenue receipts) will be devolved by the centre in the form of grants and the state’s share in taxes.
- Non Tax Revenue: Kerala has estimated to generate Rs 15,070 crore through non-tax sources in 2019-20. Of this, Rs 11,873 crore will be received from state lotteries.
Table 5: Break up of state government receipts (Rs crore)
|
Items |
2017-18 Actuals |
2018-19 Budgeted |
2018-19 Revised |
% change from BE 2018-19 to RE 2018-19 |
2019-20 Budgeted |
% change from RE 2018-19 to BE 2019-20 |
|
State's Own Tax |
46,460 |
58,588 |
53,111 |
-9.35% |
65,785 |
23.86% |
|
State's Own Non-Tax |
11,200 |
14,271 |
12,992 |
-8.96% |
15,070 |
16.00% |
|
Share in Central Taxes |
16,833 |
19,932 |
19,932 |
0.00% |
22,798 |
14.38% |
|
Grants-in-aid from Centre |
8,528 |
10,009 |
13,972 |
39.59% |
11,702 |
-16.24% |
|
Total Revenue Receipts |
83,020 |
102,801 |
100,007 |
-2.72% |
115,355 |
15.35% |
|
Borrowings |
26,841 |
23,881 |
23,250 |
-2.64% |
26,265 |
12.97% |
|
Other receipts |
380 |
335 |
986 |
194.15% |
335 |
-66.02% |
|
Total Capital Receipts |
27,221 |
24,217 |
24,236 |
0.08% |
26,600 |
9.76% |
|
Total Receipts |
110,241 |
127,018 |
124,242 |
-2.19% |
141,955 |
14.26% |
*includes additional resource mobilisation.
Sources: Kerala Budget Documents 2019-20; PRS.
- Tax Revenue: Total own tax revenue of Kerala is estimated to be Rs 65,785 crore in 2019-20. The composition of the state’s tax revenue is shown in Figure 2. The tax to GSDP ratio is targeted at 8% in 2019-20, which is in the same range as the revised estimate of 7% in 2018-19. This implies that growth in collection of taxes has been at par with the growth in the economy.
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Figure 2: Composition of the state’s tax revenue in 2019-20 (Budget Estimates)
Sources: Kerala Budget Documents 2019-20; PRS. |
· State Goods and Services Tax (SGST) is the largest component of tax revenue of the state. It is expected to generate Rs 29,011 crore in 2019-20. This is an increase of 27% from the revised estimates of 2018-19. · In 2019-20, Kerala is expected to generate Rs 23,948 crore through levy of sales tax (on items such as petroleum products), and VAT. This is an increase of 25.5% over the revised estimates of 2018-19. · Further, in 2019-20 the state is expected to generate Rs 4,712 crore from vehicle taxes, and Rs 4,487 crore from stamp duty and registration fees. |
Deficits, Debts and FRBM Targets for 2019-20
The Kerala Fiscal Responsibility and Budget Management (FRBM) Act, 2004 provides annual targets to progressively reduce the outstanding liabilities, revenue deficit and fiscal deficit of the state government.
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In 2019-20, Kerala is expected to spend Rs 34,940 crore on servicing its debt. This is 4% higher than the revised estimates of 2018-19. This includes Rs 17,739 crore towards repaying loans, and Rs 17,201 crore towards interest payments. |
Revenue deficit: It is the excess of revenue expenditure over revenue receipts. A revenue deficit implies that the government needs to borrow in order to finance its expenses which do not create capital assets.
The budget estimates a revenue deficit of Rs 8,770 crore (or 1% of GSDP) in 2019-20. This implies that revenue receipts are expected to be lower than the revenue expenditure, resulting in a deficit. The 14th Finance Commission had recommended that states should eliminate revenue deficits. The 2019-20 estimates for Kerala suggest that the state will not be meeting this target of eliminating revenue deficit.
Fiscal deficit: It is the excess of total expenditure over total receipts. This gap is filled by borrowings by the government, and leads to an increase in total liabilities. In 2019-20, fiscal deficit is estimated to be Rs 26,291 crore, which is 3 % of the GSDP. The estimate is equal to the 3% limit prescribed by the 14th Finance Commission. This limit may be relaxed to a maximum of 3.5%, if states are able to contain their debt and interest payments to certain specified levels.
Outstanding Liabilities: It is the accumulation of borrowings over the years. In 2019-20, the outstanding liabilities are expected at 30.2% of the GSDP.
Table 6: Budget targets for deficits for Kerala in 2019-20 (% of GSDP)
|
Year |
Revenue |
Fiscal |
Outstanding Liabilities |
|
Deficit (-)/Surplus (+) |
Deficit (-)/Surplus (+) |
||
|
2017-18 |
-2.5% |
-3.9% |
30.7% |
|
2018-19 (RE) |
-1.7% |
-3.1% |
30.5% |
|
2019-20 (BE) |
-1.0% |
-3.0% |
30.2% |
|
2020-21 |
-0.6% |
-3.0% |
29.7% |
|
2021-22 |
-0.8% |
-3.0% |
29.3% |
Sources: Kerala Budget Documents 2019-20; PRS.
Figures 3 and 4 show the trend in deficits and outstanding liabilities targets from 2017-18 to 2021-22.
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Figure 3: Revenue and Fiscal Deficit (as % of GSDP)
Sources: Kerala Budget Documents; PRS. |
Figure 4: Outstanding liabilities targets (as % of GSDP)
Sources: Kerala Budget Documents; PRS. |
Annexure
The graphs below compare Kerala’s expenditure on four key sectors as a proportion of its total budget, with 26 other states.[1]
- Education: Kerala has allocated 15% of its expenditure on education in 2019-20. This is marginally lower than the average expenditure allocated to education by 26 other states (using 2018-19 BE).
- Health: Kerala has allocated 5.1% of its total expenditure on health, which is marginally higher than the average expenditure of 26 other states.
- Agriculture and allied activities: The state has allocated 5.7% of its total budget towards agriculture and allied activities. This is lower than the allocations of 26 other states (6.5%).
- Rural development: Kerala has allocated 4.8% of its expenditure on rural development. This is significantly lower than the average (6.1%) of the 26 other states.
- Police: Kerala has allocated 2.8% of its total expenditure on police, which is lower than the average expenditure of 26 other states (4%).
- Roads and bridges: Kerala has allocated 4.7% of its total expenditure on roads and bridges, which is higher than the average expenditure of 26 other states.
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Note: 2017-18, 2018-19 (BE), 2018-19 (RE), and 2019-20 (BE) figures are for Kerala.
Source: Annual Financial Statement (2018-19 and 2019-20), various state budgets; PRS.
[1] The 26 other states include all states except Arunachal Pradesh, Manipur, and Meghalaya. It also includes the Union Territory of Delhi.
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