Among southern States, Kerala and AP register positive growth in capital expenditure

Despite fall in own tax and non-tax revenue, a positive growth has been registered in the revenue expenditure across all the southern States during the COVID-19.

But, only Kerala and Andhra Pradesh have registered a positive growth in the capital expenditure. The composition of the State government expenditure changed during the period with substantial increase in the share of social sector. The highest increase in subsidy expenditure of 67% was also registered in the State.

More than 100% hike in revenue and fiscal deficits in all the southern States, except Tamil Nadu (fiscal deficit of 89%), and the corresponding swell in borrowing are the common features of all States during the pandemic period.

A comparative analysis of the “State finances of southern States post-COVID-19” done by Anitha Kumary L. and Parma Chakravartti of the Gulati Institute of Finance and Taxation (GIFT) has found that the fiscal performance of the State is better when compared to States such as Karnataka, Andhra Pradesh and Telangana during the first quarter of 2020.

Kerala’s finances during April-August 2020 show a remarkable increase in subsidy expenditure (259%) which is a clear indication of the intervention to contain the pandemic by providing necessary social security programs.

The total expenditure, which comprises revenue and capital expenditure, shows an increase in quarter one of 2020 vis-à-vis quarter one in 2019 in Andhra Pradesh, Kerala and Telangana with no change in Tamil Nadu and Karnataka. The highest growth is observed in Andhra Pradesh (118%) followed by Telangana (33%).

In revenue expenditure, the highest growth is in Andhra Pradesh (113%) followed by Telangana (45%), Kerala (16%), Karnataka (6%) and Tamil Nadu (2%). In capital expenditure, the maximum growth is observed in Andhra Pradesh (160%) followed by Kerala(22%).

Kerala’s actual capital expenditure growth could be even more if the extra budgetary expenditure incurred through Kerala Infrastructure Investment Fund Board (KIIFB) is taken into account.

The fiscal measures to handle the pandemic adopted by Kerala appears remarkable as is evident from the components of revenue expenditure and its sector-wise pattern. During quarter one of 2019, the share of social sector expenditure was the lowest in Kerala (30.5%) and highest in Andhra Pradesh (59.5%), whereas the share of general sector expenditure was the highest in Kerala (53.9%) and lowest in Andhra Pradesh (17.8%).

One of the key features of expenditure observed in Kerala is the fall in share of general sector expenditure from 53.9% to 40.5%. This is an indication of strong response in addressing the pandemic.

The revenue receipts, which comprises State’s own tax revenue, non-tax revenue, share in Central taxes and grants-in-aid, show a negative growth in all the States, except Andhra Pradesh (35%).

The shock of the lockdown is still reflected in the own tax revenue collection. The negative growth in the own tax revenue collection has resulted in huge growth in the borrowings in quarter one of 2020 compared to the same period in 2019 with a highest borrowing of 478% in Karnataka, Andhra Pradesh (256%), 180% in Telangana, 113% in Kerala and 89% in Tamil Nadu. The comparative analysis of the deficit indicators suggests that revenue deficit increased by more than 100% in all States.

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