Kerala Unlikely To Meet Fiscal Target Budgeted For FY24: India Ratings

The Left Democratic Front (LDF) government in Kerala presented its annual budget last week projecting revenue and fiscal deficit at Rs 23,942 crore or 2.1 per cent of GSDP (Gross State Domestic Product) and at Rs 39,662 crore or 3.5 per cent of GSDP, respectively, for FY24. At this rate, the fiscal deficit would be just about touching the limits, 3 per cent of GSDP, and additional 0.5 per cent subject to the central government conditions, according to India Ratings, which sees revenue and fiscal deficits to be higher at 2.4 per cent and 3.9 per cent, respectively, of GSDP in FY24. This, according to the rating agency, is mainly due to a shortfall in revenue receipts and the overstated nominal GSDP growth.

The state's revised revenue deficit for FY23 came in at Rs 19,916 crore or 2 per cent of GSDP, compared to the FY23 budget estimate of Rs 22,968 crore or 2.3 per cent. Backed by a strong 12.2 per cent in nominal GSDP growth in FY23, the revenue receipts grew 10.8 per cent, higher than the annual growth of 2.1 per cent in current expenditure. According to the revised estimate for FY23, even the fiscal account is expected to see an improvement as the fiscal deficit is estimated to decline to Rs 36,764 crore or 3.6 per cent of GSDP from the budgeted Rs 39,117 crore or 3.9 per cent -- which is significantly better than the agency's estimate of 4.4 per cent due to the higher-than-expected nominal GSDP and curtailment in expenditure.

The finance minister is trying to meet the deficit due to low revenue receipts by compressing expenditure. According to the budget, the absolute slippage in revenue receipt in FY23 is around Rs 4,830 crore, while the slippage on account of tax revenue is expected to be Rs 3,846 crore. The gap in the state's own tax revenue is pegged at Rs 3,909 crore but the state's share in central taxes almost matched the budget estimate. Non-tax revenue slippage is pegged at Rs 984 crore from the budgeted numbers. Although the state's own non-tax revenue increased by Rs 3,585 crore, it could not offset the lower central grant which was only Rs 4,569 crore.

In line with the lower revenue receipt, the total expenditure was cut by Rs 6,868 crore by trimming revenue expenditure to the tune of Rs 7,882 crore. All committed expenditure heads, namely interest, salary and pension accounts, are now lower than the budget estimate. The agency said that at the core of the budget proposal is the assumption that FY24 will see a nominal GSDP growth of 11.2 per cent. But the agency said this is ambitious as the state's historical trend was 10 per cent between FY15 and FY20 and thus the nominal GSDP growth is likely to be only 10.5 per cent in FY24. According to the agency, state's own tax revenue assumption, pegged at 15.5 per cent, is slightly optimistic, which is 7.2 per cent of GSDP, up from 6.9 per cent in FY23 and 6.4 per cent in FY22.

However, the agency finds the non-tax revenue targets reasonable as it is budgeted at Rs 32,955 crore in FY24, down from Rs 41,296 crore in FY23, mainly due to the expectation of receiving much lower grants from the Centre. The agency also considers the revenue expenditure estimate to be convincing, which is budgeted at Rs 1,59,361 crore, 6.8 per cent higher than FY23. In FY24 budget, interest, salaries and pensions are estimated to grow at 5.2, 4.3 and 5.8 per cent, respectively over FY23 when these components had grown at 7.1, -13.7 and -0.8 per cent, respectively, over FY22.  Even revenue expenditure, excluding interest, salary and pension, is budgeted to grow 9.6 per cent in FY24, down from 14.9 per cent in FY23. Capex growth is modest at Rs 16,728 crore, which is 4.6 per cent lower than FY23 when it grew 6.1 per cent over FY22, the agency said.