Kerala Public Expenditure Review Committee calls for revenue boost, spending rationalisation for long-term growth

The latest report of the Kerala Public Expenditure Review Committee (KPERC) has underscored the need for revenue augmentation, diversification of non-tax sources and continued rationalisation of expenditure for the long-term growth of the Kerala economy.

The first report of the 7th KPERC, for the period 2021-22 to 2023-24, observed that Kerala is operating in “an increasingly constrained and less-than-supportive Centre-State fiscal environment.” The report of the 7th KPERC headed by K.J. Joseph was tabled in the Kerala Legislative Assembly recently.

Overall, for the period covered by the report, the Kerala economy achieved “moderate and stable” fiscal discipline, consistent with the Fiscal Responsibility and Budget Management (FRBM) framework, though under significant structural constraints, it said. According to the report, Kerala’s own fiscal capacity and growth dynamics remain decisive in shaping its medium and long-term fiscal sustainability.

The State’s fiscal record, the committee observed, indicates that broadening the tax base, improving compliance and adopting data-driven tax administration have become central pillars of revenue performance.

While commitment to social sector spending remains a defining characteristic of Kerala’s development model, expenditure analysis points to a growing importance of reprioritising spending towards productivity-enhancing investments in both physical and human capital, the committee said. “Improvements in expenditure quality — through outcome orientation, performance monitoring, and efficiency gains — are increasingly central to sustaining development outcomes within constrained fiscal space,” the panel noted.

Non-tax revenue

On the non-tax revenue side, user charges and fees in sectors such as health and education remain underutilised instruments of fiscal management, the committee said. “The evolving role of departments as contributors to resource mobilisation, rather than claimants on budgetary allocations, represents an important shift in the State’s fiscal architecture. This will necessarily call for excellence in service delivery,” it said.

The evidence from an analysis of Kerala’s fiscal situation points to the “inevitability” of a dual approach that simultaneously addresses intergovernmental fiscal constraints and strengthens internal revenue and growth fundamentals, according to the committee.

Looking at the decade from 2014-15 to 2023-24, the KPERC observed that the State’s public finances reveal a fiscal trajectory shaped by the “structural characteristics of a mature welfare economy” but troubled by extraordinary shocks arising from natural disasters and the COVID-19 pandemic. The report splits the decade into three phases – one, a period of relative fiscal stability prior to 2019-20; two, a phase of acute fiscal stress during 2020-21 to 2021-22; and three, the subsequent phase of recovery, consolidation, and adjustment during 2021-22 to 2023-24.