TM Thomas Isaac, economist, CPM central committee member and two-time finance minister of Kerala, is on a party-imposed break from electoral politics. Yet, no discussion on the state’s finances is complete without hearing what he has to say. Isaac talks at length about the ‘Kerala-model’ financial practices, his pet scheme KIIFB and the ED summons during an interaction with TNIE team as part of the Express Dialogues series.
Edited excerpts
Kerala is going through a financial crisis. The reasons cited are the dependence on borrowings and the failure to find new sources of revenue. How do you look at it?
Kerala’s model for development is bound to face a financial crunch as our aspirational levels are very high. We all aspire for a Nordic social security system. The tax-GDP ratio of Nordic countries is anything between 35-50% while Kerala’s is 10%. So when we have such an aspirational goal and try pursuing it, we are bound to face a revenue crunch. We should not be afraid of it, but we have to be careful.
A recent RBI paper has said Kerala is headed towards a debt trap…
There is no way Kerala can get into a debt trap because our borrowing is limited by the FRBM Act, which is 3% of GDP. The public debt has risen to 37% of GDP only because of the Covid pandemic. Now, that things have returned to normal, our GDP is bound to grow, and the ratio will automatically come down. In another five years from now, it will be something like 10%...
Then there are the borrowings by KIIFB…
That’s outside the state government’s limit.
But the central government has contested this. It says KIIFB’s borrowing come under the state’s limit...
That will be settled in the court as we have contested it. See, KIIFB is just like NHAI or other PSUs which are borrowing to make investments in infrastructure. Not a single pie of this borrowing comes to government coffers. Now, the central government is making a distinction that if the borrowing by the agency is financed from the budget, it will have to be included in the borrowing of the state government. If that is the case, then the same rule should be applied to the Indian government too. NHAI is implementing all the projects on a BOT basis which means there is always a viability gap funding which is from the budget. NHAI is not fully financed from its own revenue. So don’t apply double standards here.
Is KIIFB designed to be self-sufficient in the long term?
KIIFB will be running on that ideal even in the short term. It will be self-sufficient as long as the government backs up the commitment to give half of the motor vehicles tax.
But NHAI’s borrowings are under the government guarantee. In the case of KIIFB, what is the guarantee?
If the KIIFB does not make the payment, the government of Kerala will honour the commitment. But KIIFB’s model is such that these kinds of contingency will not arise. KIIFB will never undertake a project if that project pushes its liability curve above its revenue curve.
There are many who say that Kerala will become another Sri Lanka..
How can Kerala become Sri Lanka? Sri Lanka is going through a foreign exchange crisis. Kerala is part of India, and hence the state alone can’t have a foreign exchange crisis. Both are two different cases.
What, according to you, is hindering Kerala’s industrial growth? Is it militant trade unionism?
The basic problem of Kerala is not labour issues but a lack of entrepreneurial culture. Kerala never had a kind of trading or industrial class like the Marwaris or Chettiyars. In fact, one peculiarity of the caste system in Kerala is that we don’t have Vaishyas. The absence of an entrepreneurial class has been a problem. Militant trade unionism isn’t the cause of Kerala’s industrial backwardness. In fact, Mumbai was the cradle of trade unionism, but that didn’t prevent Maharashtra from making industrial progress.
You have said the recent changes in GST rates are pro-rich and anti-poor. Why would a government do that? An economist’s take on this...
See, common people are not organised while the rich are. Has there been a big protest or eruption? No, nothing. So, the poor are taken for granted.
Will you appear for questioning by ED (in the KIIFB case)?
Of course, I will, if there are no other engagements. In fact, this is my ‘Kafka moment’. If you have read ‘The Trial’ by Franz Kafka you will understand this. In it, somebody makes a false accusation against Josef K and he gets arrested with no explanation given. The current situation is such that you can be arrested but need not be told why. Having read Kafka, I’m prepared for such eventualities.
Are you afraid?
I’m not at all afraid. My only request to the ED is that they should do some homework before questioning me. I’ve read reports where ED asking questions such as “Do all IAS officers have accounts in KIIFB?” They should treat us with more respect. The summons says you have to come with your book of accounts and other documents. Me with the book of accounts...(laughs loudly)
Why do you think ED is interested in you or in KIIFB?
I don’t think ED is against KIIFB per se. But they know that KIIFB will strengthen the Left’s position in Kerala, and that is something they don’t want. The Left is a headache for the BJP, ideologically. KIIFB is not going to be undermined by ED alone. So you have many more central agencies focusing on it. The best way to get media attention is to question me. If I go and sit before ED even for a day, it will create news. If I get arrested, the whole thing will become controversial. I think that’s their larger game plan.
Coming back to the economy, our state is dependent on remittances. The remittances are coming down while jobs are not being created here…
Kerala cannot afford to wait any more. Till the Covid times, we were having a good time with our remittances accounting for one-third of our domestic production. But we failed to utilise the additional resource for investment in employment-creating activities. The growth has been based on consumption-based services. A lot of consumption-based services were created. That, I think, was a policy failure.
If it’s a policy failure, is it not the Left that has to take the blame?
History happens, and you don’t blame people for history. We, the Left, have been focusing more on day-to-day issues of common people like better wages, right to land and education, healthcare etc. It’s like we used to focus more on dividing the bread but not baking the bread. Now that we have divided up all the bread available, we want to make more bread for the people. For that, we have to shoulder the responsibility of baking. Now that we have come to power for a second time, we have the responsibility to address the systemic issues also. We must have a strategy for industrialisation, for providing jobs and for better infrastructure.
Does Kerala really need the SilverLine rail project?
Yes. The question is whether Kerala needs a rapid mass transit system 20 years from now. Now, one in four households has a car. Ten years on, one in two households will have a car. Can our roads bear the load? We have to envision a system which will remove a part of long-distance motor traffic on the road to a rapid mass system which is speedier, cost-effective and environmentally friendly. If you don’t want it today, fine. But be rational, and think of 20 years from now.
One of the biggest criticisms against the second LDF government is that it is inexperienced and the ministers are all newbies...
Not at all. They are all quick learners and they are getting better every day. I don’t see any problem there. Even Opposition leader VD Satheesan says there’s no comparison between Thomas Isaac and KN Balagopal (current finance minister)… There’s no meaning in making such comparisons. People are different. But the system remains the same as we all work according to the LDF manifesto.
But your absence is felt…
I’m not absent (chuckles). I’m very much here…, talking to you.
Can we see you contesting elections again?
I am quite content with my current phase in life. I am trying my best to complete my pending books which had got delayed due to political assignments. We will see about elections later…
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