Kerala Govt criticises Centre's fiscal approach; Highlights low alcohol tax contribution

Kerala Govt challenges Centre's fiscal policies; cites low alcohol tax contribution
Kerala C M Vijayan
Kerala C M Vijayan

Thiruvananthapuram | The Kerala Government on Thursday criticised the BJP-led Centre's fiscal approach towards the state, noting that the state had to seek a solution to the financial impasse in the Supreme Court.

The state government also clarified that only 3.7 per cent of Kerala's own tax revenue comes from alcohol, which is one of the lowest percentages among all states, contrasting with those where it can be as high as 22 per cent.

These were part of the customary policy address which was presented before the State Assembly by Governor Arif Mohammed Khan. Khan swiftly concluded the address by reading out only its final paragraph.

"My Government places the considered opinion before the Union Government that Kerala should be ensured it's well deserved share in the distribution of taxes. My Government views with concern the holding back of eligible grants and share of assistance in Centrally Sponsored Schemes.

"My Government is put to added liquidity stress because of the retrospective cut in borrowing limits, which is not in accordance with the accepted recommendations of the 15th Finance Commission. This stand of the Union Government needs an early reconsideration," reads the document, copies of which were distributed to the media after the Governor's brief address.

In the document, the Governor said his government's stupendous achievements have come about despite many formidable challenges confronting it.

"Paramount among these is the liquidity stress stemming from the vertical imbalance between the Union and the States in fiscal matters," it said.

The document said the fact that the Union possesses a significantly greater capacity to mobilise resources compared to the states, while the states are mandated to undertake developmental expenditures that far surpass their revenue generating capabilities points to a great asymmetry within India's federal system.

"Over time, this has further intensified, constraining the fiscal position of the states," it said.

Noting that the consistent decline in the awards of the successive Finance Commissions serves as a compelling case in point, the document said Kerala witnessed a decline in it's share of taxes devolved by the Union Government from 3.88 per cent during the 10th Finance Commission period (1995-2000) to a mere 1.92 per cent during the 15th Finance Commission period (2021-2026).

"In 2023-24, the discontinuation of GST compensation, a reduction in revenue deficit grant, and restrictions imposed on off-budget borrowings of the State by the Union exacerbated the fiscal condition of the State.

"The State has been constrained to approach the Hon'ble Supreme Court for a solution to the financial impasse thrust on the State", it said.

The document, however, said despite grappling with these formidable challenges, the state government remained steadfastly committed to infrastructure development and growth focused on a knowledge economy, along with sustained social security spending, the hallmark of the Kerala Model of Development.

Talking about the measures taken by the government on achieving fiscal consolidation on one hand and enhancing domestic revenue mobilisation on the other, it said in 2022-23, the state government successfully raised own tax revenues amounting to Rs 71,968 crore, marking an increase of nearly Rs 13,600 crore, or 23.4 per cent from the previous year.

"According to the Reserve Bank of India, Kerala is among the top performers in revenue mobilisation efforts," it said.

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