The Kerala Fiscal Responsibility Act, 2003

[Translation in English of “2003-ലലെ കകേരള ധനസസംബന്ധമമായ ഉത്തരവമാദദിത്ത ആകക്റ്റ്” published under the authority of Governor]

ACT 29 OF 2003 THE KERALA FISCAL RESPONSIBILITY ACT, 2003*

An Act to provide for the responsibility of the Government to ensure prudence in fiscal management and fiscal stability by progressive elimination of revenue deficit and sustainable debt management consistent with fiscal stability, greater transparency in fiscal operations of the Government and conduct of fiscal policy in a medium term fiscal frame work and for matters connected therewith or incidental thereto.

Preamble.—WHEREAS it is expedient to provide for the responsibility of the Government to ensure prudence in fiscal management and fiscal stability by progressive elimination of revenue deficit and sustainable debit management consistent with fiscal stability, greater transparency in fiscal operations of the Government and conduct of fiscal policy in a medium term fiscal frame work and for matters connected therewith or incidental thereto:

BE it enacted in the Fifty-fourth Year of the Republic of India as follows:—

1. (1) This Act may be called the Kerala Fiscal Responsibility Act, 2003.
2. (2) It shall come into force, on such date as the Government may, by notification in the Gazette, appoint.

In this Act, unless the context otherwise requires,—

1. (a) ‘annual budget’ means the annual financial statement laid before the Legislative Assembly under article 202 of the Constitution of India;
2. (b) ‘committee’ means public expenditure review committee constituted under sub-section (1) of section 6. Received the assent of the Governor on the 13th day of September,2003 and published in the Kerala Extraordinary Gazette No. 1738 dated 17th September, 2003.
3. (c) ‘current year’ means the year preceding the year for which the budget and medium term fiscal policy are being presented.
4. (d) ‘fiscal deficit’ means the excess of total expenditure of the Government over the total receipts and represents the borrowing requirements, and net of repayment of debt of the Government during the year, calculated as prescribed by the Comptroller and Auditor General of India;
5. (e) ‘fiscal indicators’ means measures such as numerical ceilings and proportions to gross state domestic products as may be prescribed for evaluation of the fiscal position of the State Government;
6. (f) ‘Government’ means Government of Kerala;
7. (g) ‘medium term fiscal framework’ means the frame work drawn up by the Government for a five year period from the financial year on which this Act shall come into force with the objective of progressively eliminating the Revenue Deficit;
8. (h) ‘prescribed’ means prescribed by rules under this Act;
   • (i) ‘previous year’ means the year preceding the current year;
9. (j) ‘revenue deficit’ means the difference between revenue expenditure and revenue receipts and implies increase in the liabilities of the State without corresponding increase in the assets of the State calculated as prescribed by the Comptroller and Auditor General of India;
10. (k) ‘State’ means the State of Kerala;
11. (l) ‘total liabilities’ means liabilities upon the Consolidated Fund and public account of the State;
12. (m) ‘triggers’ means the intra year bench marks on deficit.

1. (1) The Government shall lay in every financial year before the Legislative Assembly along with the annual budget, a medium term fiscal policy statement and a fiscal policy strategy statement.
2. (2) The medium term fiscal policy statement shall set forth a three year rolling target for fiscal indicators with specification of underlying assumptions.
3. (3) In particular and without prejudice to the provisions contained in sub- section (2) the medium term fiscal policy statement shall include assessment of sustainability relating to,—
   • (a) the balance between revenue receipts and revenue expenditure;
   • (b) use of capital receipts including open market borrowing for generating productive assets.
4. (4) the fiscal policy strategy statement shall, interalia, contain,—
   • (a) policies of Government for the ensuing financial year relating to taxation, expenditure, borrowings and other liabilities, lending and investment and such other activities like underwriting and guarantees which have potential budgetary implications;
   • (b) the strategic priorities of the Government for the ensuing financial year in the fiscal area;
   • (c) evaluation as to how current policies of the Government are in conformity with the fiscal management principles as set out in section 4 and the objectives set out in medium term fiscal policy statement.

1. (1) The Government shall take appropriate measures to reduce the revenue deficit and build up an adequate revenue surplus by following such principles as may be prescribed. 1[(2) In particular and without prejudice to the generality of the foregoing provision, the Government shall, eliminate the revenue deficit completely during the period from 2021-2022 to 2025-2026 and shall; pe
   • (a) make revenue surplus in the order of 0.5 per cent, 0.8 per cent, 1.2 per cent, 1.7 per cent and 2.5 per cent of the Gross State Domestic Product in the years of 2021-2022, 2022-2023, 2023-2024, 2024-2025 and 2025-2026 respectively and the targetted loan amount within the limit of fiscal deficit shall be completely spent for asset development;
   • (b) reduce fiscal deficit to 3% of estimated Gross State Domestic Product within a period of five years commencing from 1st April, 2021 and ending on 31st 1 Substituted by Act 13 of 2022( w.e.f 01-04-2021). March, 2026 by maintaining the fiscal deficit at a level not exceeding 4.5 per cent, 4 per cent, 3.5 per cent, 3.5 per cent of the Gross State Domestic Product in the years 2021-2022, 2022-2023, 2023-2024 and 2024-2025 respectively and reducing it to 3 per cent in 2025-2026; Note:—(i) The above upper limit of fiscal deficit is inclusive of 0.5 per cent capital expenditure linked borrowing space and an additional borrowing space of 0.5 per cent of Gross State Domestic Product linked to performance in power sector during 2021-2022 to 2024-2025.
     • (ii) The State shall be eligible for capital expenditure linked borrowing, if the State achieves the targeted capital expenditure fixed for the State. In order to become the State eligible for additional borrowing linked to the performance in power sector, all the entry level conditions and performance evaluation criteria stipulated for each year need to be filled.
     • (iii) If the State is not able to fully utilise its sanctioned borrowing limit (excluding power sector borrowing), in any particular year during the first four years of Finance Commission award period (From 2021-2022 to 2024-2025), it will have the option of availing the unutilised borrowing amount in any of the subsequent years within the Finance Commission award period.
   • (c) Reduce the total debt liabilities of the State in the order of 34.7 per cent, 34.5 per cent, 33.7 per cent, 32.8 per cent and 32 per cent of the Gross State Domestic Product in the years of 2021-2022, 2022-2023, 2023-2024, 2024-2025 and 20252026 respectively.]

1. (1) The Government shall take suitable measures to ensure greater transparency in its fiscal operations and minimise as far as practicable in public interest official secrecy in the preparation of annual budget: Provided that the Government shall have the power to reserve any such information which would adversely affect the interest of the State Exchequer.
2. (2) In particular and without prejudice to the generality of the foregoing provision the Government shall at the time of presentation of annual budget disclose in such manner as may be prescribed,—
   • (a) the significant changes in the accounting standards, policies and practices affecting or likely to affect the compliance of the prescribed fiscal indicators;
   • (b) as far as practicable, all outstanding contractual liabilities, revenue demand raised, but not realised, committed liability in respect of major works and supply contracts, losses incurred in providing public goods and services, off budget borrowings and contingent liabilities created by way of guarantees having potential budgetary implications.

1. (1) As soon as may be after the commencement of the Act, the Government may, by notification in the Gazette appointed a Committee to be called ‘Public Expenditure Review Committee’.
2. (2) The Committee shall consist of not more than five members who are having expertise in the fields of Finance, Economic Management, Planning, Accounts and Audit and Law.
3. (3) The members of the Committee shall be appointed by the Government on the recommendation of the Selection Committee consisting of Chief Minister, Finance Minister and the Leader of the Opposition.
4. (4) The terms and conditions of the members in the Committee shall be such as may be prescribed.

The Committee shall submit to the

Government in such form and at such intervals as may be prescribed a review report giving full account of each item where the deviation from the fiscal target have occurred during the previous year.

1. (1) The Government shall specify in the annual budget the contingent measures that it would take to control the increase in deficit beyond certain specified levels during the coming year. Whenever there is either shortfall in revenue or excess of expenditure over specified levels during the course of the year, the Government shall take steps either to make proportionate reduction in the voted expenditure authorised from the Consolidated Fund or to increase the revenue and in case such reduction being made it shall be without affecting the amount charged thereon. Triggers as well as corrective actions that shall be initiated upon activation of triggers shall also be the integral part of the budget.
2. (2) The Finance Minister of the State shall make a statement in the Legislative Assembly explaining any deviation in meeting the obligation of the Government under this Act and shall further explain whether the deviation is substantial and relates to the actual or the potential budgetary outcome and state the remedial measures that the Government propose to take in this regard.

The Government may, by notification in the Gazette, make rules for the purpose of carrying into effect the provisions of this Act.

1. (2) Every rules made under this Act shall be laid, as soon as may be after it is made, before the Legislative Assembly while it is in session for a total period of fourteen days which may be comprised in one session or in two successive sessions and if, before the expiry of the session in which it is so laid or the session immediately following, the Legislative Assembly makes any modification in the rule or decides that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so however that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.

No suit, prosecution or other legal

proceeding shall lie against the Government or the Committee or any Officer of the Government or any member of the Committee for anything which in good faith done or intended to be done under this Act or the rules made thereunder.

The provisions of this Act shall be in

additions to and not in derogation of the provisions of any other law for the time being in force.

1. (1) If any difficulty arises in giving effect to the provisions of this Act, the Government may, by order, do anything not inconsistent with such provisions to remove such difficulty.
2. (2) No order under sub-section (1) shall be made after the expiration of a period of two years from the commencement of this Act.
3. (3) Every order made under this section shall be laid, as soon as may be after it is made before the Legislative Assembly.