The Hindu : Kerala / Thiruvananthapuram News : State's growth pegged at 8 per cent

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Friday, Mar 09, 2007
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Kerala - Thiruvananthapuram

State's growth pegged at 8 per cent

Special Correspondent

Economic Review for 2006 presented in Assembly

THIRUVANANTHAPURAM: Kerala economy recorded a growth rate of eight per cent under constant prices in 2005-06, slightly lower than the 8.2 per cent recorded in the previous year, according to the Economic Review for 2006, presented in the State Assembly on Thursday.

True to the pattern in the recent years, the growth in 2005-06 was powered by the tertiary sector, which contributed 60.5 per cent to the Gross State Domestic Product (GSDP). The primary sector continued to perform abysmally, accounting for just 15.7 per cent of the GSDP, with the secondary sector chipping in with a contribution of 23.8 per cent.

The Review, prepared by the State Planning Board, notes that the development trajectory in the State bears striking resemblance to that of the national economy, which grew by 7.5 per cent in 2004-05 and 8.4 per cent in 2005-06. The relative shares of the three sectors too are not too dissimilar, with the primary, secondary and tertiary sectors having contributed 22 per cent, 24 per cent and 54 per cent respectively to the National Gross Domestic Product.

Notwithstanding the good growth rate, the stagnation or retrogression being experienced by the primary sector, which employs a bulk of the work force, is a reason for serious concern for the State, according to the Review. It will lead to a widening of income inequalities. "Kerala's [growth rate] figure... camouflages significant and non-diminishing deprivation and destitution," it says.

Within the secondary sector, the predominant contribution is from construction activities rather than manufacturing activities. This is due to the predominance of small and traditional industries, struggling under the new economic policy regime, in Kerala's secondary sector. Construction boom is driven by the quite substantial remittance inflows. The Review gives clear indications about a change in the Government's approach to managing the State finances after the Left Democratic Front (LDF) assumed power in May 2006.

As dictated by the Fiscal Responsibility Act, the previous Government had tried to bring the revenue deficit and fiscal deficit under control (from a peak of 5.8 per cent and 7.25 per cent respectively of the GSDP reached in 1999-2000) during its five-year-term in office. The revenue deficit came down to 2.8 per cent and fiscal deficit to 3.7 per cent in 2005-06.

The Review notes that the revenue deficit in 2006-07 (the first year of the LDF Government's term) will go up to 4.29 per cent and the fiscal deficit to 5.97 per cent of the GSDP. According to the Review, the deficit compression achieved during the last five years was at the expense of Plan outlay and public spending, which can potentially widen inequalities and create contradictions in a growing economy.

Total revenue receipts of the State Government is set to increase by 19.41 per cent in 2006-07 (budget estimates), against just 1.98 per cent in 2005-06 (the year when the revenue collection efforts had not stabilised after the changeover to the Value Added Tax regime). However, revenue expenditure in 2006-07 is estimated to increase by 33.28 per cent. "Revenue expenditure amounts to about 96 per cent of the total expenditure in 2005-06. The share of the State's expenditure on education is more or less the same, but that on health sector gradually falls," the Review notes with concern.

During the period from 1995-96 to 2006-07 (up to December 31, 2006), the total debt of the State increased from Rs.10,113.54 crore to Rs.55,320.49. "The ever growing debt of the State at this rate is a matter of serious concern," the Review says.

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