CAG report amidst Kerala's financial crisis

A few days ago, there was a heated debate in Kerala Legislative Assembly about the state's serious financial crisis. When the adjournment motion on the issue moved by the Opposition was approved, three and a half hours was set aside for discussion on the subjec. Both sides raised the same old arguments repeated for years. While the opposition argued that the state's financial situation was ruined by the government's mishandling and corruption, along with the complete failure of the tax system, the ruling party also presented it as the fault of the central government. In addition, Finance Minister K.N. Balagopal and others did not forget to raise political criticism against the opposition for bringing up the central government's arguments in the Assembly. While it is true that the flawed economic policy being adopted by the Centre towards Kerala as an 'opposition state' has led to a major financial crisis, anyone who approaches the issue honestly cannot completely dismiss the opposition's allegations. The Comptroller and Auditor General (CAG) report, submitted by the Finance Minister himself in the Assembly yesterday, also affirms this.

According to a study report released by the Reserve Bank of India in January 2023, Kerala's public debt is about Rs 4 lakh crore. This means that every child in the state is born with a debt of more than half a lakh rupees. Everyone will agree that the policies implemented by the Centre in the name of economic reform programs are the reason why the economy has deteriorated so much. The Centre also has a bitter political feud, deliberately ignoring the financial assistance that states like Kerala are entitled to. Not transferring the GST compensation that Kerala is rightfully entitled to and not allowing money within the debt limit are all forms of neglect towards Kerala. There is no doubt that all of this has contributed to Kerala's economic situation taking it a step back. However, the latest CAG report also corroborates the opposition's and many economic experts' argument that this is not the only reason for the current problems. When the CAG points out that the unscientific nature of funds utilisation and lack of financial discipline are the causes of the economic crisis, that cannot be dismissed.

As a rule, the state government has been adopting a method of imposing additional burdens on the common people who are struggling in the economic crisis by imposing new cesses and taxes. This was also the case in the latest budget presented by the finance minister. The state government sees new tax proposals and cess on petrol and diesel as the only way to overcome the central government's 'blockade'. In the middle of all this, there have been criticisms regarding billions of rupees of tax arrears not being collected. In other words, if the tax arrears that are due to the government are duly collected, it will be a great relief to the government, which is forced to borrow money for even day-to-day expenditure. But the government has not been prepared to face this criticism directly. This is also being underlined by the CAG. The state is bound to collect 28,258.39 crores of rupees in taxes under 17 heads. This amounts to a quarter of the total revenue.

The CAG observation that the reasons for the undercollection of revenue is due to the delay in the timely transfer of the report to the revenue department and the failure to take subsequent action to recover the arrears is also to be taken seriously. The CAG report also points out the weaknesses in our systems and irregularities that have been ongoing for years through these systems. The accounts of government employees and service pensioners who have usurped social security pensions are clear evidence of such irregularities. The government may be able to dismiss the contents of this report as another political gimmick by the central government. During the first Pinarayi government, Finance Minister Thomas Isaac presented the report in the assembly after omitting the adverse comments in it. This practice may still be repeated. However, the government must recognise that it does not solve the existing problems.