(The arguments in the White Paper presented by the Finance Minister K M Mani in the Assembly as marked yellow. The responses are made just below of each paragraph)
64. In terms of the recommendations of the 12th Finance Commission, a scheme of debt waiver of principal portion of central loans based on reduction to be achieved in revenue deficit consistently from 2005-06 was introduced by Government of India. The 12th Finance Commission computed the eligible sum to the State as A 1063.05 crore under the scheme. As against this, the State could avail only A 250.26 crore. The failure in availing the balance of A 812.79 crore was due to the inability of the Government to reduce revenue deficit in a regular manner. This was because of the non plan revenue expenditure (NPRE) growing by nearly 100 percent from the figure of A 15227 crore in 2005-06 to A 29403 crore in 2010-11. This was against a growth of just 53 percent during the period 2000-01 to 2005-06. This brings to light the extravaganza of the previous Government in favour of unproductive expenditure.
Para 64 – It is argued that 812 crores of Rupees of debt waiver was lost due to the inability of the government to comply with the fiscal consolidation path suggested by the Finance Commission. The Finance Commission trajectory is unrealistic and it was the last UDF government that first went on record that the targets cannot be met without substantial enhancement of central transfers. This was the position adopted by the UDF government in its memorandum submitted to the 12th Finance Commission. Then how can the last government be accused of laxity? The data regarding 100% increase in non plan revenue expenditure during the last 5 years is primarily because of the change in the accounting practice to book plan grants to local governments as non plan revenue expenditure.
Trends of Balance from Current Revenue
The trend in BCR 20001-02/2010 -11
BCR (Rs cr)
LSG plan devolution
BCR minus LSG
66. Though there was proliferation in NPRE the expenditure could not reach the required level in the targeted areas. Also there was failure in availing debt waiver and eligible grants from the Centre. This resulted in deterioration of Balance from Current Revenue (BCR) as well. The previous UDF Government had addressed this issue and was able to avoid massive hike in negative BCR in the first three years viz. 2001-02, 2002-03 and 2003-04. The Government succeeded in its attempt in reducing the negative BCR by 24.6% (to A 1496 crore) in 2004-05. It was further reduced by 52.7% (to A 707.60 crore) in 2005-06. However, such a trend was reversed by the previous Government. The negative BCR increased by 88.4% in the year 2006-07 and by 177% in 2007-08. The figure remained consistently high even in the next two years though there was a decline from 2007-08 figure. It ended at (-)A 1624 crore in 2009-10 as can be seen from Table T11.
Para 66 – The White Paper argues that the proliferation of non plan revenue expenditure and failure to avail debt waiver and eligible grants from the centre resulted in the deterioration of Balance from Current Revenue (BCR). As evidence it produces time series data from BCR between 2001-02 and 2009-10 which is reproduced in column 2 of table AT 11.
The above data is yet another unpardonable data manipulation. The data of BCR from 2006-07 is not comparable to the data for the previous years. From 2006-07, following the recommendations of the Third State Finance Commission, the plan grants to local governments are booked as non plan revenue expenditure. The objective was to precisely worsen the balance from current revenue in the state accounts so as to get a more favourable treatment from Union Finance Commission for bridging the revenue gap. This change in the method of accounting is very well known in the Finance Department. It is strange that this data being abused to prove that under the LDF government, the trend for improvement in BCR was reversed. “The previous UDF Government had addressed this issue and was able to avoid massive hike in negative BCR in the first three years viz. 2001-02, 2002-03 and 2003-04. The Government succeeded in its attempt in reducing the negative BCR by 24.6% (to A 1496 crore) in 2004-05. It was further reduced by 52.7% (to A 707.60 crore) in 2005-06. However, such a trend was reversed by the previous Government. The negative BCR increased by 88.4% in the year 2006-07 and by 177% in 2007-08. The figure remained consistently high even in the next two years though there was a decline from 2007-08 figure. It ended at (-) A 1624 crore in 2009-10... The worsening contribution from revenue account for plan financing resulted not only in excessive dependence on borrowings but also reduced the availability of resources for financing capital expenditure. Had the better Balance from Current Revenues (BCR) in 2005-06, continued in subsequent years also, it would have improved not only the revenue deficit but also the capital expenditure”.
We are at a loss to understand how anyone would dare to take recourse to such blatant data rigging. In table AT11 we have given the non plan grants allocation to LSGIs from 2006-07 to 2009-10. If they are also taken into consideration the negative BCR during the LDF period becomes positive but for the year 2007-08 which was the year of pay revision.
68. The Constitution envisages maintaining 'Public Account' in respect of which the state has to act as a trustee and has to function as a banker for some limited essential items of inflows and outflows in the smooth conduct of Government business. But in the State the Public Account has been extensively utilized with a view to secure additional funds by exhorting the Welfare Fund Boards and other government institutions to deposit their money with treasury at an interest rate higher than the interest rate payable on open market borrowings. As a result, the outstanding liabilities under Public Account have swollen to A 21296 crore in 2009-10 from A 14841 crore in 2005-06. This can upset the financial planning of Government, if funds are withdrawn at large scale from these accounts at call.
69. Another unhealthy practice is the provision of maintaining TSB account and PD accounts by the departments, quasi government institutions and Local Self Government Institutions (LSGIs). Transfers to these accounts are without cash flows that is, through accounting adjustments from service heads in the nature of an actual expenditure. Hence expenditure eventhough booked in the service heads would happen in a later date only. The claims arising during a later period will put State’s liquidity under pressure. The increase in the net liabilities under Public Account in the last five years is illustrated in the table T12.
70. The danger of promoting deposits to Public Account, in excess of the manageable limits is that a liquidity crisis looms large over the government as had prevailed in the State in the later half of 1990's when the cheques issued by Government authorities failed to be honoured, questioning the credibility of sovereign instruments. This kind of situation would affect the process of planning and budgeting and also implementation of programmes.
Para 68-70- The White Paper has taken serious objection to mobilisation of funds through public accounts. It is a legitimate source of mobilising funds for capital expenditure. In fact the Expenditure Review Committee had devoted a separate chapter to analyse the public account system in Kerala and positively recommended to regulate the utilisation of public account. It is true public account borrowing is relatively costlier and therefore should be used judiciously. But it will be totally of the mark to accuse the LDF government of being proliferate in borrowing funds through public account. It may be noted the last two years when the accrual under public account tended to increase the fiscal deficit of the state was well below the ceiling fixed by the Central Government.