KERALA PUBLIC EXPENDITURE REVIEW COMMITTEE REPORT

Third Kerala Public Expenditure Review Committee- First Report

The Third Public Expenditure Review  Committee constituted under section 6 of the Kerala Fiscal Responsibility Act of 2003(Act 29 of 2003)has submitted the first report.Click here to download the report.

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IMPORTANT RECCOMENDATIONS

• Misclassification of taxes has been observed. The Committee recommends to conduct reconciliation of accounts of tax collection to ensure the recording oftransactions under proper heads of accounts.
• In spite of high potentiality of non-tax revenue (such as land revenue, forest revenue, user charges etc), its collection is much lower than the average of Southern States and all states. The Committee recommends an exhaustive study in this respect by an expert group at the earliest .
• recommends appropriate steps to control distortive tendencies of tax evasion, avoidance and trade diversion.
• The root cause for the higher revenue and fiscal deficit in the state is the mounting expenditure on four items viz., salaries to government staff, teaching grants to private aided educational institutions, pensions and interests. The Committee recommends changes in fiscal policy and priorities in public spending to address this issue especially on the four items (para4.4).
• The large and mounting expenditure on salaries and pensions due to its revisions in every five years is a basic cause for the continuous revenue and fiscal deficit of the state. Taking into consideration of the critical fiscal situation of the State, the Committee recommends (i) the revision of salaries and pensions once in 10 years as
  followed by central government; (ii) to reduce the item of expenditure through introduction of e-governance, payment of salaries, pensions, social welfare schemes through banks, introduction of email for official communications etc; (iii) some of the subsidiary activities like watch and ward, cleaning, gardening, transport of officials, delivery of mails etc may be outsourced or given on contract basis without long term financial commitments.( para 4.8)
• Currently, half of the total staff in the State paid from public funds are in the educational institutions. More than half of the total salary expenditure is incurred on education. This opportunity cost of spending has serious socio-economic consequences. The Committee recommends that wasteful expenditure in these items may be curbed. (para 4.6 & 4.7).
• The system of grants-in-aid has resulted in excess educational institutions, excess staff and a lot of wasteful expenditure. The Committee recommends (1)the practice of starting new educational institutions and courses in private aided sector may be discontinued;(2)the existing private aided educational institutions may be allowed to
  start new course only in unaided stream; and (3) for social equity reasons the present system of recruitment in the private aided sector may be reviewed.(para 4.11,4.12 and 4.13)
• The recent decision of the government to switch over from the present system of statutory defined benefit scheme (pension scheme) to contributory scheme is a sound decision. The Committee recommends that the implementation process may be expedited for achieving fiscal stability in the long run. (para 4.19)
• Though the state is implementing a number of social welfare schemes, the pensions are not paid monthly and hence the beneficiaries are not getting the desired benefits. The Committee recommends that necessary steps may be taken by the Departments and LSGIs to distribute the pensions every month through banks / epayment. (para 4.19)
• The universities in Kerala heavily rely on grants-in-aid from the government and face serious financial problems. In the allocation of grants-in-aid to universities no criteria or norm is followed by the government. It is allocated arbitrarily without considering financial position, development requirements, teaching and research and other vital academic issues. The Committee recommends the constitution of regulatory agency, a State University Grants Commission to evaluate the activities and to allocate grants-in-aid on a regular basis.(para 4.20 and 4.24)
• The passing of the State budget in June and July, delays the processing of schemes by the Department for further administrative sanction and implementation. The Committee recommends that steps may be taken to pass the budget in March every year (para 5.29).
• The delay in physical movements of files and documents across various layers of Govt leads to delayed administrative sanction and consequent implementation. The Committee recommends that e-governance may be urgently initiated in various stages of project formulation, implementation, monitoring and evaluation (para 5.31).