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സിപിഐ എം കേന്ദ്ര കമ്മിറ്റി അംഗം, ആലപ്പുഴ എംഎല്‍എ. കേരള ധനം , കയര്‍ വകുപ്പ് മന്ത്രി

Thursday, July 21, 2011

The Alternative White Paper - Part III

(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)

Part II
Public Finance

Unproductive Expenditure 

64.  I terms  of  the  recommendations  of  the  12th   Financ Commission,  a scheme of debt waiver of principal portion of central loans based on reduction to be  achieve in  revenue  deficit  consistently from  2005-06  wa introduce by Government of India The 12t 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  bring to  light  the  extravaganz 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
Table AT11
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 require 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  thre year 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.          I 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 yea 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 seefrom 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 threyears 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  pla financing resulted not  only in excessive dependence on borrowings but also reduced the availability of resources for financing capital expenditure Had the better Balancfrom Current Revenues (BCR) in 2005-06, continued in subsequent years also, it would have improved not only the revenue deficit but also the capitaexpenditure”.

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  envisage maintaining  'Public  Account'  in  respec of which the state has to act as a trustee and has to function as a banker for some limite essentia items  of  inflows  and  outflows  in  the  smooth  conduc 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 aan 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 cror 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 acall.

69.  Another unhealthy practice is the provision of maintaining TSB account and PD accounts by the departments, quasi government institutions and LocaSelf Government Institutions (LSGIs). Transfers to these accounts are without cash flows that is, through accounting adjustments from service heads in the nature of a actua expenditure. Hence expenditur 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 undePublic 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  authoritie faile 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.

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