People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 13

March 28, 2010

Kerala Budget 2010-11: Celebrating the Left Alternative!


K N Harilal


OVER the last four years the LDF government in Kerala has been trying to evolve and nurture a Left and Democratic alternative to the neo-liberal package of economic policies followed by the union government as well as the non-Left state governments. In the initial years of the present government in Kerala it hardly had any fiscal space to develop such a people�s alternative. What it inherited was a miserably impoverished exchequer. The machinery of planning and development administration of the state was also in ruins. Further, the state governments including Kerala were being persuaded using both carrots as well as sticks to follow the neo-liberal model. In spite of such hurdles and threats from the central government the LDF has stuck to its politics and successfully developed an alternative, which is now beginning to be acclaimed and celebrated even outside the state. What the latest state budget (2010-2011) marks is a new milestone in this saga of making an alternative to the mainstream of economic policies in the country.

One of the central features of the neo-liberal policies in the country has been that of fiscal conservatism by which the size of the government, both at the Centre as well as the states is sought to be cut by reducing government expenditure on welfare as well as development. This was achieved by adamantly insisting on reducing the fiscal deficit of the governments, which meant denying or reducing their space to borrow. The role played by the Fiscal Responsibility and Budget Management Acts (FRBM Acts) in all this is notorious to be explained here in detail. The global economic crisis has exposed the hollowness of fiscal conservatism and the underlying neo-liberal premises. Even the most orthodox of all regimes in the western capitalist world had to bring in state sponsored stimulation packages, more often than not violating the conservative fiscal norms including those on fiscal deficit. Government of India has not been an exception in this. It had to violate the FRBM norms on its own and allow the state governments to do the same. But as the Union budget 2010-11 clearly indicates the central government is in a hurry to go back to the conservative fiscal path. It has laid down a new road map for reducing the fiscal deficit for the union as well as state governments. By example it also demonstrates as to how the fiscal deficit could be brought down. Incidentally the example it sets is of immense value in illustrating how the neo-liberal and the Left paths diverge and proceed in opposite directions. The union finance minister wants to reduce the fiscal deficit, in spite of the threat of recession still looming large; because he thinks it would help check inflation. The main method he chooses is to hike the duties on petroleum products. This �highly inflammable� method may help bring down the fiscal deficit but is highly likely to trigger a cost-push inflation spiral in the country making life more miserable to the ordinary people. Interestingly, the fear of fiscal deficit does not prevent the union finance minister from giving huge concessions to the relatively more wealthy direct tax payers. What it exposes is the class character of the neo-liberal budgets. It is the class character again that prompts the Left governments to tread along a different path of fiscal management and reform.

The basic structure of the Left alternative was laid out in the first LDF budget as also in the approach paper to the state�s eleventh five year plan, where it was clearly stated that the state government would not try to cut its size and grow small. Instead it was proclaimed that it would try and maximize its welfare as well as development expenditure. If the expenditure is properly financed it need not lead to inflation or any financial anarchy. Therefore, the state government was committed in maximizing its revenue from all possible sources except the ones that adversely affected the poor and the vulnerable. At the same time it refused to abide by the FRBM norms. It wanted to borrow more than what the FRBM Act of Kerala would allow it to mobilize from the market. It had also accepted certain self-disciplining norms like reducing the revenue deficit so that borrowed funds are put increasingly for meeting capital expenditure.

That this Left alternative has great potential was proved in the first year of the government itself when its interventions helped end the farmer suicides in the state. Subsequent years and the annual budgets presented since then saw commendable maturing of the proposed Left and Democratic alternative. The present state budget appears to have elevated the whole experiment to a higher trajectory of progress. An important sign of this success story has been the growing size of the state government itself, measured in terms if its expenditure, in the plan as well as non-plan accounts. The annual plan for 2010-11 at Rs. 10,000 crores is widely accepted to be a major achievement in terms of its sheer size. Interestingly, the tenth five year plan outlay of the state formulated under the previous UDF government had an outlay of just Rs. 24000 crores for the long five years! The expenditure achieved was even less. As rightly predicted the increase in the size of the government and the remarkable growth in development and welfare expenditure had not been at the expense of the fiscal health of the state government. On the contrary almost all indicators presented in the annual economic review of the state suggest significant improvement in fiscal performance. Over the last four years the state�s tax and non-tax revenue have grown at a significantly faster rate compared to the long-term growth rates of the respective variables. While expenditure also registered unprecedented growth there has been a remarkable improvement in the quality of the expenditure. The ratio of capital expenditure to total expenditure has increased from around 3.78 per cent in 2005 to 8.10 percent in the current year. The latest budget anticipates further improvement in these key fiscal ratios.

It is such clarity of approach on the one hand and fiscal strength accumulated over the last four years that enabled the state finance minister Thomas Isaac to make many path-breaking announcements in the latest budget that appeared to be too good to believe for many observers. It is true that many of the announcements were beyond the reach of even imagination a few years ago. But, the background described here and the track record of achievements in the previous years affirms that the budgeted programmes are eminently achievable.  The budget has enhanced all welfare pensions in the state to Rs 300 per month. It has become the first state to extend the employment guarantee programme to the urban areas in the state. It is also going to be the first state to implement an income support programme for workers such as those in the Khadi and Handloom sector who earn too little from their occupations but are not covered by the employment guarantee programmes. The budget proposes to give rice at Rs two to 35 lakh families, which covers nearly half of the households in the state. The budget has earmarked Rs 500 crores for provision of subsidized rice. The integrated health insurance programme will be extended to all those who receive subsidized rice. The sum assured will be increased from Rs 30000 to 70000 in the case of cancer, and cardiac diseases. What is listed here is only a sample of major welfare programmes mentioned in the budget speech.

The provision of subsidized rice will help the government in controlling the food price inflation. Even though Kerala is an acute food deficit state its position is among the states registering lowest increase in consumer price index, thanks to the state government�s effective intervention in the market. Kerala perhaps is also the first state to anticipate the present global and national food crisis. Even as the approach paper to the eleventh five-year plan was being prepared food security was identified as one of the leading concerns of development planning in the state. Consequently all the hitherto annual plans of the present government have identified food production as a leading area of intervention. The results are there for everybody to see. For more than thirty years area under cultivation and production of rice has been consistently declining in the state. The data for 2008-09 show that the declining trend has been reversed.  Area as well as production has registered significant growth in 2008-09 and in the first half of 2009-10 for which data are available. Almost the same is the case of milk and egg production and inland fisheries in the state. After a long gap of sustained decline upward movements have been registered in many such areas of primary production. The annual budget for 2010-11 has many programmes to sustain what has been achieved so far in agriculture and allied sectors.

The traditional industries in Kerala such as coir, cashew, beedi, handloom, and the small-scale industries which employ more than two third of the industrial work force in the state generally perform well under the LDF governments. A major process of revival has taken place in these sectors under the present government too. This was made possible by liberal enhancement in the plan and non-plan allocations of such sectors. The latest budget has announced another round of marked increase in government allocation for these labour intensive sectors.

The union budget has announced an ambitious disinvestments programme for the public sector with a view to mobilize resources and fill the fiscal deficit. The previous UDF government was trying its level best to sell off even the profit making public sector units in the state. Under the new government the state public sector units (PSUs) received a new lease of life. In the previous year all but four PSUs in the state made profit. The new budget announced opening of eight new public sector units in the state investing around Rs 125 crores. This is in addition to major expansion programmes undertaken under the existing units.

The emphasis given to the PSUs, labour intensive industries, and the welfare programmes has not been at the expense of the sectors that lead the growth process in the state such as information technology, tourism, infrastructure, and higher education. Higher education sector in the state has been starved of plan as well as non-plan funds from the state government for a long while. The present government has been trying to augment resource flow into the sector. The new budget is making a major break in this regard by making 50 to 70 per cent increase in the allocations of most higher education institutions in the state. It is expected to enliven the campuses and research stations in the state.

Information technology and other high growth sectors are also slated to receive substantial increase in government investment.

Kerala budget for 2010-11 will be remembered for other two pioneering initiatives as well. It will have the distinction of the first green budget in the country. It has initiated a series of measures to make the development process of the state environmentally more sensitive. It is proposed to constitute a green fund of Rs 1000 crores over the coming five years, which will be used for widening the forest cover, protecting mangroves, saving energy, and preserving biodiversity. The new budget of Kerala can also claim to be the first genuine attempt at gender budgeting in the country. It has made an attempt to evolve and allocate funds for a significant number of plan projects that would be empowering women and furthering the cause of gender equality. Around Rs. 620 crores would be spent on schemes solely benefitting women.

An important dampener of the growth process of the state has been the state�s inability to develop the infrastructure sector. In fact the state government was not in a position to undertake huge investment required by the major infrastructure development projects. The state budget for 2010-11 stands apart for the strides it proposes to make in the infrastructure sector. Kannur Airport, Vizhinjam Port, Kochi Metro, LNG Retail Network, Kerala State Transport Programme-Second Phase, Vyttila Mobile Hub, etc., are some of the major infrastructure initiatives that have been announced in the budget. That the unmatched burden of social and welfare expenditure borne by the state government has not deterred it from equally demanding commitments in the area of development investment speaks volumes on the strength of the Left and Democratic alternative being experimented in the state. It�s all round success as authenticated by the plan and budget figures on the one hand and fiscal and growth indicators on the other and the increasing reach and coverage of the welfare net gives all concerned sufficient reason to celebrate the Left alternative.