Kerala Stares at Huge Revenue Crisis as Crude Heads South – CORPORATE ETHOS

Kerala Stares at Huge Revenue Crisis as Crude Heads South

By: | November 27, 2018

All is not well in Kerala economy, at the moment. While the state is struggling hard to come out of the hardships caused by the unparalleled floods that left Kerala crippled; and the economic problems that have afflicted the industry and the government.

It has been noted that Kerala suffered an economic loss of Rs 28,000 crore during the floods that killed 500 people and destroyed tens of thousands of homes and washed away roads. The state government has calculated that the cost for rebuilding Kerala will come to around Rs 30,000 crore.


The Pinarayi Vijayan government, which has been applauded by the international community for successfully handling the flood situation and bringing back normal life, has taken some good initiatives to rebuild Kerala. But unfortunately, the Supreme Court verdict on the entry of women between 10 and 50 years of age into the Sabarimala temple and the political uncertainty that ensued, have shifted the priorities and Kerala is now all set for huge for a huge recession.

From the feelers that emerge from the market, it is clear that 2019 will be the toughest period for the Kerala economy and traders at large. Already many shops and traders are finding themselves hard to survive, owing to sharp decline in business. The major trading sectors in Kerala, such as textiles, hotels, jewellery, retail and electronics, have seen considerable sales damages, post-floods.

Traders point out that the depression in the retail business will have a negative impact on the government’s tax collection in coming days. The state government, which is spending more than what is collected by way of tax, towards salary and pension payment, will find it difficult to sail smoothly forward to find funds for the infrastructure necessities as part of the rebuilding process. While the tax revenue has started shrinking, the ruling regime needs to explore innovative models to raise funds for infrastructure.


However, the huge fall in the crude price in the international market is going to be the biggest challenge for the Left Democratic Front, which has been in power for the last three years. Economist-turned-politician and Finance Minister of the state Dr Thomas Issac has every reason to worry. Since the domestic petrol and diesel prices have been coming down sharply owing to the southward movement of crude in the international market, there will be huge revenue losses for the state government.

Evaluating the petrol price movement in Kerala would reveal that that the price had seen a huge increase during the first half of this financial year. The government usually garners huge profit every time the petrol and diesel prices move upward. Data from oil companies say that the petrol price had increased from Rs 77.67 per litre in the first week of April to more than Rs 87 per litre in the beginning of November. During this time, the government had gained more than Rs 12,000 crore as additional revenue. There had been a similar addition of close to Rs 10,000 crore from diesel and other petroleum products.

The government of Kerala levies 31.8 percent as Value Added Tax (VAT) on one litre of petrol and 24.52 percent on one litre of diesel. Fuel revenue is the third largest revenue grocer for the state.


However, from November onwards, prices fell drastically. The petrol price has moved down to Rs 78 per litre in November 2018 from Rs 87 in the beginning of the month. The trends suggest that it will come down further. In that case, the government may face huge revenue drop, owing to the sharp fall in petrol and diesel tax revenue.

For a state, which heavily depends on petroleum tax, this could prove to be huge challenge during the coming months. Industry sources believe that the state machinery needs to explore more innovative methods to find alternative tax sources to continue with the rebuilding process.