Kerala Budget: Fiscal Stress To Remain Elevated, Says India Ratings
Kerala Budget: The state may see wider than budgeted fiscal deficit and has limited room for expenditure reprioritisation
Kerala's fiscal deficit and revenue gap may be higher than projected in the state's budget for FY23, according to India Ratings and Research.
The state has projected a fiscal deficit of 3.9% of gross state domestic product compared to 5.14% in the revised estimates of FY22. The revenue gap is pegged at 2.3% in the current fiscal compared to 3.54% last year. India Ratings, however, expects the fiscal deficit at 4.4%, and the revenue deficit at 2.9% of GSDP, it said in a note dated April 5.
GSDP Growth Achievable; Tax Revenue Targets Stretched
Kerala has projected GSDP growth of 10.83% in nominal terms. This, according to India Ratings, is achievable based on historical trends. The rating agency sees the state's economy growing 11% in FY23.
However, the state's estimates of growth in own tax revenue are stretched. Revenue from this source is expected to rise 25.87% compared to the revised estimates for FY22. A shortfall in the state's own tax revenue in FY23, therefore, cannot be ruled out, the rating agency said.
On the other hand, the state has budgeted conservatively on its share in central taxes. Non-tax revenue growth of just 1.4% also appears modest.
Limited Room For Re-Prioritisation Of Expenditure
On the expenditure front, the state has limited room to re-prioritise, said India Ratings.
Kerala has budgeted for 4.85% revenue expenditure in FY23 over the revised estimates of the previous year. The rise may be understated, said India Ratings, adding that the actual expenditure may be higher.
Unlike a number of other states, a reasonable 10% growth in capital expenditure is being projected by Kerala.
"According to India Ratings, while the budgeted capex growth looks realistic, it might still fall short of the target somewhat, as the compounded annual growth of capex during FY17-FY21 has been negative 0.5%. In all these years, the actual capex has been much lower than the budgeted amount," the research note said.
Unrealistic Medium-Term Plan
Kerala's medium-term fiscal plan also looks unrealistic, India Ratings said. The state projects its fiscal deficit to decline to 2.57% by FY25, and sees its revenue gap narrow to 1.18%.
The debt/GSDP is expected to decline to 35.7% by FY25, from 37.13% in FY21. "Recovering from the impact of Covid-19 and attaining a sustained real GSDP growth level of 8.5%-9.5% will not be easy, and the assumptions of own tax revenue growth of 14% each in FY24 and FY25 also appear to be optimistic," said India Ratings.