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 crore. 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. 

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

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%

 

 

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

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.

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. 

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.

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.

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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