Introduction and Executive Summary of the Alternative White Paper

This is an “Alternative White Paper” to the official “White Paper” tabled in the Kerala Legislative Assembly by Finance Minister K. M. Mani on 19-07-2011. The white paper issued by the government is a colossal fraud on the people of Kerala. It is not published to present an objective analysis of the “current status of the state finance before the people of Kerala”. Instead, it is published for exactly the opposite objective of giving a politically motivated and statistically distorted picture of the state’s finances. The Finance Minister has even resorted to falsifying the data, suppressing relevant information and, of course, misinterpretation of the data. This is why we decided to present our Alternative White Paper; this is a paragraph-by-paragraph, argument-by-argument response to the scurrilous document of the government. The Finance Department of the Government of Kerala should be ashamed of producing such a document.

First, there is clear evidence that data has been manipulated, and wrong data have been used by the government. Table T1 is an excellent example. Here, the claim of the government is that “during the UDF rule, we had highest growth of GSDP at 23.34% in 2004-05.” This is totally wrong. What the government has done is to combine two different data series, with two different base years, that are not comparable and pass a judgement. There is one data series with base year 1999-2000. In the government’s white paper (Table T1), this series ends at 2003-04. From 2004-05, the data used in Table T1 belong to another base year, which is 2004-05. Even a Master’s student in Economics or Statistics would know that when data belong to two base years, it is wrong to use them together, Instead, a technique called “splicing” has to be applied to make them comparable. When we applied the correction, the GSDP growth rate comes to only 14% in 2004-05. The corrected numbers are in Alternate Table 1.

The government, here, has deliberately used wrong data and manipulated facts.

Secondly, the government’s white paper, curiously, does not use data for 2010-11 (RE) at all in many tables. This is deliberately done because that year was one of the best performing financial years under the LDF government; the UDF government was hoping to obscure the sharp contrast between the LDF and UDF Governments by this cheap trick. The government’s white paper also adopts a spurious posture of objectivity by dividing the decade of 2000s into two phases: 2000-01 to 2004-05 and 2005-06 to 2009-10. In fact, 2000-01 is a year of the LDF government. The UDF period begins only by 2001-02. Hence, the periodisation in this alternative white paper shall be 2001-02 to 2005-06 (UDF) and 2006-07 to 2010-11 (LDF). When we do this correction, the complete picture changes, as we shall see.

Thirdly, the government has used data blindly, without looking at whether the definitions of some items have changed over the years. The best example is Table T11 on Balance from Current Revenue (BCR). The government argues here that there was “deterioration of Balance from Current Revenue (BCR)” under LDF. BCR is calculated as Current Revenues minus Non-Plan Revenue Expenditure. From 2006-07 onwards, the plan allocation to local self governments (LSGs) have been added to the category of non-Plan Revenue Expenditure, according to the Rabeendran Nair Commission report. This comes to roughly Rs 2000 crore every year. Simple intelligence should have told the Minister that this will raise non-Plan revenue expenditure from 2006-07 onwards, and thus result in a fall in BCR. Corrected data are given in this alternative white paper.

Fourthly, numerous tables in the government’s white paper themselves show that the record of the LDF government was far better than that of the previous UDF government. One may look at data on (a) revenue deficit, (b) fiscal deficit, (c) primary deficit, (d) debt/GSDP ratio, (e) share of salaries, pensions and interest in revenue expenditure and revenue receipts, and (f) revenue collection efforts of the government. The government’s white paper is an effort at obfuscation; it is selective in this analysis and does not attempt any objective analysis of state’s finances.

Fifthly, we disagree totally with the views of the Minister on cash surpluses. The LDF’s argument was not against cash surpluses waiting to be spent. Our criticism was against cash surpluses that are not spend, but instead kept in the coffers of the RBI. The first budget of the LDF government opened with a sharp attack on the obscenely large treasury balance that has characterized finances of the state governments since the advent of the FRBM Acts. That is different from the surplus of Rs 3881 crore that the LDF has left behind. Our surplus was waiting to be spent. Once the bills of public works launched since 2008-09 start coming in for payment, this surplus will disappear. The surplus of Rs 3881 crores was kept by us precisely to meet this contingency. As a part of our fiscal management strategy, we refused to either (a) spend this surplus on current expenditure despite pressures from the demands of an election year or (b) keep it as savings with the RBI.

During the LDF period, there were some voices in the Finance Department itself that argued the case for reducing the borrowing by not utilising the full allocation of loans given by the Centre. Unfortunately, the Centre is not going to compensate in future for the loans not availed from this year’s quota. Instead, it is insisting that states borrow in the first half of the financial year, while the expenditures of state governments mostly take place in the last quarter of the financial year. This also has contributed to occasional surpluses in the treasury during the course of a year. Going back to the treasury surplus at the end of the financial year, it is stated that full quota of the year was borrowed with full knowledge that it would not be spend in 2010-11, but would also be carried forward to 2011-12. This was part of our financial management strategy. The LDF government was not irresponsible as the White Paper makes it out to be.

Strangely, the Finance Minister who expects that the paper would “initiate a wider debate on the state of public finance and analysis thereof” is refusing to join the dialogue. He even refused to yield to counter points or even simple points of information on the floor of the Assembly. Instead of answering questions, he teased the opposition to bring out their Alternate White Paper if they have any points. The motives of the official White Paper is not any open deliberation, but simply slander propaganda against the previous government. Truth needs to come out, and we hope that this alternative white paper would serve that purpose. With this intention, we humbly table this document in the public domain.

Part - I

Part I - Continuation

Part - II

Part III