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Kerala’s Persistent Fiscal Stress
Since the mid-1980s, Kerala has been battling fiscal stress, despite the state’s economy growing faster than the national economy. Moreover, this stress is only getting aggravated, even though Kerala’s tax effort has been recognised as above average. Studying available data with an alternative approach points to the failure of public resource mobilisation as the primary cause of this fiscal stress. The inability to harness the state’s fiscal potential, an incorrect perception about the state’s fiscal situation, and a lack of political will to address the situation have exacerbated the crisis.
The author is grateful to M A Oommen for incisive comments on an earlier draft, as also to the anonymous referee for comments and suggestions.
Kerala has been facing fiscal stress with varying intensity since the mid-1980s. Though the state has been coping with it in various ways, it is only getting aggravated as the years pass by. Kerala’s fiscal crisis is baffling, considering the fact that the state’s economy has been growing faster than the national economy in recent years. Also, studies on relative tax efforts of states have consistently found Kerala as one putting in above average effort. Attempts have been made in the past to explain the fiscal problem in terms of the structure of the state’s public expenditure (George 1990) and the limitations imposed by the federal Constitution in mobilising its own resources (Mohan and Shyjan 2005).
This article argues that the methodology suggested in the literature to assess the relative tax performance of states suffers from limitations in the context of Kerala. Adopting an alternative approach and using revenue data for the last six decades, the article attempts to show that Kerala’s persistent fiscal stress is the fallout of the failure of public resource mobilisation. It is argued that the political institutions that evolved over the years made public resource mobilisation increasingly difficult, and in the process, helped the evolution of an own revenue structure, that places a disproportionately high burden on the poor and marginalised sections of society.
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