KOCHI: A big challenge awaits K N Balagopal, the new Kerala finance minister, known for mild manners but not scared to speak his mind on seemingly complex economic issues even if that meant contradicting his senior party colleague and economist-finance minister T M Thomas Isaac.
Balagopal, 58, assumes office at a time when the state's finances are stretched to the limit, hit by the Covid19-triggered economic slowdown, fall in remittances following the huge inflow of expatriates from the Gulf due to job losses and higher funds outgo on loan interest payments and salary pay hike as recommended by the 11th pay commission. "Balagopal faces a daunting task as the state's finances are in a sticky wicket. The good thing is that he listens to people, has an open mind and takes feedback from experts, does his research before formulating his opinion. Humility is his forte," said Jose Sebastian, former faculty of the Thiruvananthapuram-based Gulati Institute of Finance and Taxation.
The new finance minister's elder brother K N Harilal is an economist of repute and a professor at the Thiruvananthapuram-based Centre for Development Studies (CDS). Harilal is also a member of the Kerala Planning Board. "That's an added advantage; to have someone like Harilal to provide an unbiased opinion on complex economic issues," said Sebastian.
Balagopal was in the spotlight for his tough stance on the Goods and Services Tax (GST) as CPM's deputy leader at the Rajya Sabha in 2017, when the state finance minister Isaac was gung-ho on the new tax regime. Balagopal as a member of the Select Committee of the Upper House put a dissent note on the GST bill while his party colleague Isaac welcomed the GST, predicting at least a 20 percent rise in tax revenues for Kerala. Isaac based his argument relying on the fact that GST was a destination-based tax and would benefit Kerala, a consumer state.
Balagopal, a first-time MLA in the new LDF government, in his dissent note warned that the GST will take away the rights of the states to decide taxes according to their social-economic situations. "GST will take away the rights of the states to plan their revenues. Finance Ministries, both the states and the centre, will end up as distributing agencies with no power to make policy decisions," he had said then, adding that budgets will be mere papers and the GST council, controlled by the centre, will be all-powerful.
In a telephonic interaction after taking the oath on Thursday, Balagopal told The New Indian Express that he fears further loss of control as the central government planned to include petroleum and alcohol -- a big revenue earner for the states -- in the GST. "The central government is squeezing the states as part of its policy. If that happens, it would further reduce the states' revenue," he said.
In an earlier interview with this paper, Isaac admitted his calculations went wrong on GST. "I involved myself very hard in GST’s fashioning to ensure that it’s more beneficial to Kerala. For example, there was a big move for manufacturing states to have a special cess for them. We ensured that GST remained a destination tax. There also many other things. The reason why we decided to accept the system was that we thought it was going to improve the tax revenues of Kerala, which will help finance the very ambitious social welfare programme. Which failed for reasons like bad implementation and very low rates fixed. Now there’s no choice. You have to work within the GST, get the support of other states to raise rates to a revenue-neutral level, to ensure much better implementation," he had said. Isaac said the way forward is to make GST more friendly to the states.
During his stint at Rajya Sabha from 2010-16, Balagopal had also taken up the need for supporting the rubber farmers and the cashew workers. As finance minister, the new finance minister is expected to provide some solace to these segments.
Looking back, Balagopal's stance proved to be right on the new tax regime with reports suggesting that the GST compensation due to the states standing at Rs 1.51 lakh crore at the end of the 2020-21 financial year. The GST compensation due to Kerala alone stands at Rs 7,077 crore. But what would define Balagopal's term in office is his novel ideals to weather the state's shaky finances and how he finds new sources of revenue for the fast-depleting exchequer.