Kerala : Local Bodies and State Finances

Quite a few weeks before the state budget was due to be presented by Kerala's finance minister to the state assembly, the government's liquidity position appeared to have become so parlous that treasury outgo was not being allowed at the pace normal for this part of the year. Simultaneously questions have started being raised in the media and elsewhere as to how far the current financial difficulties of the state government could have been caused by the transfer of substantial funds as grants to local bodies under the state plan. The question needs to be answered, if only to ensure that the situation is not used to discredit the decentralisation of plan programmes to the local bodies. This is all the more important because after the forthcoming assembly elections, policy decisions will have to be taken on the formulation of the state plan.

In Kerala it had been decided in 1997-98 to allocate 35 to 40 per cent of state plan funds to local bodies for financing local level plans formulated by them. Accordingly, local bodies were to receive an amount of Rs 749 crore as plan grant in 1997-98, more than three times the amount of Rs 212 crore allocated in 1996-97. The state budget is naturally expected to make full provision for the payment of the allocation for local bodies, as is done in the case of the provision for projects and programmes of the different state departments included in the state plan. The provision made in the state budget for 2001-02 for allocation of plan grant to local bodies is Rs 1,065 crore. The plan devolution to the local bodies is thus substantial, not only in absolute amount but also in relation to the estimated revenue account deficit of the state government of Rs 2,532 crore for the year. But the plan grant to local bodies is taken as part of Kerala's state plan for calculation of central plan assistance. The question of the plan grant to local bodies creating financial difficulties for the state government would arise only if more than the budgetary provision made in this regard had been released. There is nothing to indicate that this has been the case in any of the years.