THIRUVANANTHAPURAM: When he took over the baton from T M Thomas Isaac, Finance Minister KN Balagopal might not have foreseen that the job at hand would be one of the toughest in the state. Balagopal, whose reserved persona is in stark contrast to that of Isaac who found a place in every household with his daily dose of finance ‘gyan’, is busy preparing his first full budget. In a freewheeling chat, he speaks about the state’s finances.
Q. Is the state finances facing a crisis? How do you analyse the situation?
The economy and state finances are passing through a tough time due to the pandemic and recession, in general. In fact, Covid, recession and the wrong economic policies of the Centre are creating stress to all states.
The state finance ministers had raised these apprehensions at the meeting convened by the Union finance minister recently.
The prime reason for the state’s deficit is the significant decline in the state’s share from the Centre’s divisible tax pool. It dropped from 3.92% to 2.45% during the 14th Finance Commission award period and then to 1.92% during the current — 15th — Finance Commission period. Covid and the Centre’s unilateral GST rates revision worsened the situation.
On the expenditure side, the state’s commitments rose in disproportionate terms. The major factors were the Nipah outbreak, the consecutive floods, Ockhi, and Covid. People lost income and government spending on the health sector went up manifold.
Q. Under the GST regime, the state’s power to levy tax has become limited. Do you have plans to tap into more tax avenues?
GST has robbed almost all major tax avenues of states. I was part of the Rajya Sabha’s select committee on GST which raised serious objections against the new tax regime.
Our opinion was that such policies were part of globalisation, and would not do any good to the country. Now those fears have become a reality. The major tax avenues left with us are earnings from the sale of fuel and liquor. These sectors offer little scope for further taxation. The non-tax revenue avenues will not give you big sums.
Q. Do you think the pay revision made in April was a wise decision? Didn’t it worsen the debt situation?
It is true that the salary revision has stressed the state finances. The Pay Commission and its implementation are routine affairs. I don’t think there is much relevance in discussing something that has already been implemented. Also, I feel the focus should be on increasing the revenue to meet the expenses. Kerala follows a policy of decent pay and job security. There may be states spending lesser amounts on salary and pension. But many of them have stopped permanent recruitment and follow contract appointments. We should aim to revive the economy and increase revenue. The government is sure that the fair treatment to employees will be repaid by them in terms of quality service to people. They should make active interventions in the revival of the economy, and the manufacturing and service delivery sectors.
Several states are facing the issue of rising public debts. States have to avail of loans in such situations. After all, we cannot ignore the commitments to give quality healthcare, education, employment and services to people. Kerala’s debt situation is not something dangerous. The debts and loans adhere to the Centre’s FRBM guidelines. The Centre gives sanction after assessing the repayment and inflation aspects. We expect a significant jump or growth in the economy in the coming two or three years. It will help us overcome this situation.
Q. Can you reveal the government’s plans to tide over the critical situation? Will the government make serious efforts to rationalise expenditure?
We will bank on our human resources. The manufacturing sector will be revamped with the participation of educated youths, NRKs and returnees. Efforts are on to make a big jump possible in agricultural production. More investment and new technologies will be facilitated in the industries sector. The programmes for the growth of tourism and health sectors have already begun. We expect a 10 to 15% growth in the economy in the next two or three years. Serious measures will be taken to cut unnecessary expenditure.