Funding a welfare state that lasts

Context

The recent suicide of a differently-abled man in Kerala due to delayed pension payments has sparked a debate on the state's fiscal challenges and its ability to fulfill welfare obligations amidst constraints imposed by the Central government. Kerala has petitioned the Supreme Court to arbitrate on the issue of Central restrictions on its borrowing, highlighting the broader issue of Centre-State fiscal relations.

Fiscal Challenges and Central Restrictions:

• Constraints: Kerala faces fiscal constraints in fulfilling welfare obligations, exacerbated by restrictions on borrowing imposed by the Central government.
• Questionable authority: The state's plea to the Supreme Court questions the authority of the Centre to constrain states' financial decisions, particularly regarding welfare expenditures.
• Main issue: Despite claims of high spending on public services, Kerala's fiscal challenge stems from limited resource mobilization and skewed allocation of public expenditure, notably towards non-development expenditures.

Resource Mobilization and Expenditure Allocation:

• The fund fact: Kerala's per capita expenditure on social and economic services lags behind states like Goa due to lower resource mobilization.
• Skewed allocation: Non-development expenditure, including interest payments and administrative services, surpasses development expenditure, indicating skewed allocation of public funds.
• Necessary restructuring: Legacy burdens such as high interest payments further strain Kerala's capacity for welfare provision, necessitating a restructuring of finances.

Evaluating Borrowing and Fiscal Restructuring:

• Challenges: Kerala's projected revenue deficit highlights the challenge of borrowing for non-revenue-generating expenditure, signaling the need for fiscal restructuring.
• Prioritizing: While challenging Central restrictions on borrowing, Kerala must prioritize financial stability by reducing debt burden and enhancing revenue generation.
• Balanced approach: Sustainable welfare provision requires a balanced approach of raising revenue, trimming expenditure, and ensuring sturdy financial foundations for the state.