[Reader-list] Financial State of Kerala

[A. Mani]

>From http://dr-tm-thomas-isaac.blogspot.com/2011/07/introduction-and-executive-summary-of.html


Introduction and Executive Summary of the Alternative White Paper

This is an “Alternative White Paper” to the official “White Paper”
tabled in the Kerala Legislative Assembly by Finance Minister K. M.
Mani on 19-07-2011. The white paper issued by the government is a
colossal fraud on the people of Kerala. It is not published to present
an objective analysis of the “current status of the state finance
before the people of Kerala”. Instead, it is published for exactly the
opposite objective of giving a politically motivated and statistically
distorted picture of the state’s finances. The Finance Minister has
even resorted to falsifying the data, suppressing relevant information
and, of course, misinterpretation of the data. This is why we decided
to present our Alternative White Paper; this is a
paragraph-by-paragraph, argument-by-argument response to the
scurrilous document of the government. The Finance Department of the
Government of Kerala should be ashamed of producing such a document.

First, there is clear evidence that data has been manipulated, and
wrong data have been used by the government. Table T1 is an excellent
example. Here, the claim of the government is that “during the UDF
rule, we had highest growth of GSDP at 23.34% in 2004-05.” This is
totally wrong. What the government has done is to combine two
different data series, with two different base years, that are not
comparable and pass a judgement. There is one data series with base
year 1999-2000. In the government’s white paper (Table T1), this
series ends at 2003-04. From 2004-05, the data used in Table T1 belong
to another base year, which is 2004-05. Even a Master’s student in
Economics or Statistics would know that when data belong to two base
years, it is wrong to use them together, Instead, a technique called
“splicing” has to be applied to make them comparable. When we applied
the correction, the GSDP growth rate comes to only 14% in 2004-05. The
corrected numbers are in Alternate Table 1.

The government, here, has deliberately used wrong data and manipulated facts.

Secondly, the government’s white paper, curiously, does not use data
for 2010-11 (RE) at all in many tables. This is deliberately done
because that year was one of the best performing financial years under
the LDF government; the UDF government was hoping to obscure the sharp
contrast between the LDF and UDF Governments by this cheap trick. The
government’s white paper also adopts a spurious posture of objectivity
by dividing the decade of 2000s into two phases: 2000-01 to 2004-05
and 2005-06 to 2009-10. In fact, 2000-01 is a year of the LDF
government. The UDF period begins only by 2001-02. Hence, the
periodisation in this alternative white paper shall be 2001-02 to
2005-06 (UDF) and 2006-07 to 2010-11 (LDF). When we do this
correction, the complete picture changes, as we shall see.

Thirdly, the government has used data blindly, without looking at
whether the definitions of some items have changed over the years. The
best example is Table T11 on Balance from Current Revenue (BCR). The
government argues here that there was “deterioration of Balance from
Current Revenue (BCR)” under LDF. BCR is calculated as Current
Revenues minus Non-Plan Revenue Expenditure. From 2006-07 onwards, the
plan allocation to local self governments (LSGs) have been added to
the category of non-Plan Revenue Expenditure, according to the
Rabeendran Nair Commission report. This comes to roughly Rs 2000 crore
every year. Simple intelligence should have told the Minister that
this will raise non-Plan revenue expenditure from 2006-07 onwards, and
thus result in a fall in BCR. Corrected data are given in this
alternative white paper.

Fourthly, numerous tables in the government’s white paper themselves
show that the record of the LDF government was far better than that of
the previous UDF government. One may look at data on (a) revenue
deficit, (b) fiscal deficit, (c) primary deficit, (d) debt/GSDP ratio,
(e) share of salaries, pensions and interest in revenue expenditure
and revenue receipts, and (f) revenue collection efforts of the
government. The government’s white paper is an effort at obfuscation;
it is selective in this analysis and does not attempt any objective
analysis of state’s finances.

Fifthly, we disagree totally with the views of the Minister on cash
surpluses. The LDF’s argument was not against cash surpluses waiting
to be spent. Our criticism was against cash surpluses that are not
spend, but instead kept in the coffers of the RBI. The first budget of
the LDF government opened with a sharp attack on the obscenely large
treasury balance that has characterized finances of the state
governments since the advent of the FRBM Acts. That is different from
the surplus of Rs 3881 crore that the LDF has left behind. Our surplus
was waiting to be spent. Once the bills of public works launched since
2008-09 start coming in for payment, this surplus will disappear. The
surplus of Rs 3881 crores was kept by us precisely to meet this
contingency. As a part of our fiscal management strategy, we refused
to either (a) spend this surplus on current expenditure despite
pressures from the demands of an election year or (b) keep it as
savings with the RBI.

During the LDF period, there were some voices in the Finance
Department itself that argued the case for reducing the borrowing by
not utilising the full allocation of loans given by the Centre.
Unfortunately, the Centre is not going to compensate in future for the
loans not availed from this year’s quota. Instead, it is insisting
that states borrow in the first half of the financial year, while the
expenditures of state governments mostly take place in the last
quarter of the financial year. This also has contributed to occasional
surpluses in the treasury during the course of a year. Going back to
the treasury surplus at the end of the financial year, it is stated
that full quota of the year was borrowed with full knowledge that it
would not be spend in 2010-11, but would also be carried forward to
2011-12. This was part of our financial management strategy. The LDF
government was not irresponsible as the White Paper makes it out to
be.

Strangely, the Finance Minister who expects that the paper would
“initiate a wider debate on the state of public finance and analysis
thereof” is refusing to join the dialogue. He even refused to yield to
counter points or even simple points of information on the floor of
the Assembly. Instead of answering questions, he teased the opposition
to bring out their Alternate White Paper if they have any points. The
motives of the official White Paper is not any open deliberation, but
simply slander propaganda against the previous government. Truth needs
to come out, and we hope that this alternative white paper would serve
that purpose. With this intention, we humbly table this document in
the public domain.
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Rest of document at
http://dr-tm-thomas-isaac.blogspot.com/2011/07/introduction-and-executive-summary-of.html

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Best

A. Mani





-- 
A. Mani
ASL, CLC,  AMS, CMS
http://www.logicamani.co.cc