On November 30, the eve of the first Government payday since demonetisation of large-denomination currencies, Kerala’s Marxist Finance Minister TM Thomas Isaac had said, “This month the State Government has funds but sufficient currencies are not there to pay salaries and pensions. Next month, currencies may be available but there will be no funds with the Government.”
At the end of a month since demonetisation, the fears of Isaac, himself an economist, seem to be turning true with almost all sectors of the State’s economy showing signs of drastic downturn with intense “recession” (as an economist put it) continuing in trade and commerce even as experts are predicting that the situation may continue for some more months.
The biggest cause of worry, according to officials in the Department of Finance, is the drastic downslide seen in the growth of tax collection. The dearth of cash due to demonetisation had hit the market which directly affected tax collection just when the Government had embarked on efforts to raise the growth in it to over 20 per cent.
The tax collection, which had stood at 17 percent in October, fell to 13.2 percent in November, sources in the Finance Department said. The Government had been able to collect `3,028.5 crore in October but this came down to `2,761 crore in November, obviously due to the recession in the market caused by demonetisation.
“At this rate, disbursal of salaries and distribution of welfare pensions before Christmas will become extremely difficult for the Government,” said a top official in the Department of Finance. “More importantly, it is quite possible that the Government will be struggling to meet the expenses of its routine affairs,” he added.
As expected in the days following demonetization, lotteries sector, one of the major sources of income for the State Government, showed a sharp fall in revenues in November. The lottery business had generated Rs 735.33 crore in October but this fell to Rs 372 crore last month. The Government had suspended the lottery business for sometime following demonetization.
Demonetization has caused disturbing reversals in the real estate business in the State and the Government’s revenues from registrations were hit badly because of this leading to a negative growth of 18 percent. In October, the Government had received Rs 250.33 crore from registrations but this fell to Rs 151.44 crore in November.
Excise, one of the sectors which used to show consistent growth, also failed to produce the expected increase in taxes, which during the period under consideration was just 2.7 percent. Income from Excise sector for the period under consideration was Rs 158.39 crore. The revenues from the Excise sector in the corresponding period last year were Rs 154.2 crore.
Finance Ministry sources said that the Government’s plans to mobilize money for meeting the salaries and pensions requirement from the State-controlled corporations – like monopoly bootlegger Kerala State Beverages Corporation (Bevco) – for December could also be hit by the slump in business caused by the demonetization.
According to Bevco officials, there had been a 20-percent fall in the sales turnover of the corporation in November. They said the corporation had suffered this slump in sales as it was not authorized to accept the demonetized currency notes. “However, the sales have been showing signs of picking up since last week,” said an official.
According to the estimates of the Finance Department, demonetization could lead to a 25-percent slump in the general financial situation of the State and the revenues of the Government could decrease by 50 percent. Officials said that they were not optimistic about improvement in the situation as the after-effects of demonetization might last for six months.