Kerala budget opens up countercyclical window?

In his maiden budget, KN Balagopal offers a ‘care economy vaccine’ to address the double negatives that have emerged in the Covid context. Balagopal has attempted to scale up the state’s health and care economy, while stimulating the regional economy.
Knowing well that it would be counterproductive to impose taxes when the aggregate demand is weak, the budget has not attempted the same, though the tax potential has not fully dried up. With the second economic package worth Rs 20,000 crores, which is a first in India and equivalent to last year’s relief package, Kerala government has proved time and again how it takes care of the vulnerable social sections during a crisis.
Equally important are the three major components of the package of which ‘health first’ is assured (Rs 2,800 crore) by taking precautionary measures for the cyclical occurrence of Covid-19. The livelihood and welfare component (Rs 8,900 crore) and the rejuvenating component, in the form of loans, interest subsidies, are preserved (Rs 8,300 crore). It was further supplemented with coastal developments, scaling up of MSMEs, diversification of plantations, livestock developments and so on. Further, there is a renewed focus on cooperatives and banks.
Despite unfavourable conditions, the finance minister has opened up opportunities in imaginative forms. A few examples are worth citing. In the agri sector that has registered a significant negative growth over the past one year, there is a clear shift from crop credit to investment credit which would be realized through Kerala Bank and potential investors with government support. This would not only help Kerala Bank scale up the otherwise declining credit growth in state but also boost value-addition processes and manufacturing sectors aimed at domestic and international markets. This would certainly boost a new responsible entrepreneurship here, apart from assuring food security.
Given that Kerala is characterized by a knowledge society, which is yet to be transformed into a knowledge economy, the importance given to upgradation of higher education, digital innovation and multi-skilling though K-Disc and so on, thanks to KIIFB, has the potential to make the state a knowledge hub. This will benefit not only the educated youth but also women, whose low labour force participation is still a constraint in the way of advancement of the economy.
The new finance minister is fortunate enough to have access to revenue deficit grants of 15th finance commission —worth Rs 19,891 crore this year— and grants to health in particular and a provision for additional borrowing within FRBM regulations. The state would also be eligible for GST compensation worth Rs 4,500 crore. New sources of tax could obviously be identified and tax revenue could also be scaled up by improving the efficiency of tax collection.
Covid crisis is also a moral economy crisis and the only government, which could be ideologically sensitive to this, would be a Left-leaning one. This is reflected in the current budget. Yet, the challenge of addressing the ‘scissors crisis’, increasing divergence between government’s revenue and expenditure, is a challenge that Left government faces yet again in its second term.