Finance Minister K N Balagopal is perhaps the most mild-mannered minister in the Pinarayi 2.0 government. The soft exterior, however, belies his unenviable task of shepherding Kerala's finances, especially given the dire condition the state exchequer finds itself in. He spoke to TNIE on the demand for withdrawing the fuel-cess proposal announced in the state budget, austerity measures, increasing the retirement age of state employees, and his plans to save the state from the current mess. Edited excerpts:
There is talk that the fuel cess announced in the state budget is to rescue KIIFB...
There is no connection between the new cess and KIIFB. KIIFB already gets `1/litre cess from fuel. (KIIFB also gets 50% of motor vehicle tax). KIIFB gets nothing from this budget. We are calling the new levy ‘social-security cess’. The `1 from fuel and `20 from liquor will exclusively be directed at social-security measures.
The opposition is arguing that KIIFB will become irrelevant as it no longer can borrow…
By saying that KIIFB will become irrelevant, the opposition is justifying the Centre’s intrusion into the financial freedom of the state government.
After KIIFB’s wings were clipped, the argument is that infra projects should be carried out by the respective departments, like the PWD implementing road works, instead of handing them over to KIIFB...
The beauty of KIIFB is that work can be done much faster as compared to implementing the work through the system. In the last two years alone, it has executed projects worth Rs 12,000 crore. It has pulled off projects worth Rs 22,000 crore across the state so far. The efficiency and speed with which KIIFB implements projects is unprecedented.
Will you be forced to wind up KIIFB?
Not at all.
You have talked about the state’s revenue-deficit grant declining with each passing year. But, data shows that after West Bengal, Kerala has been the biggest recipient of revenue-deficit-grant from the Centre...
We don’t consider revenue-deficit grant as a permanent phenomenon. There was a huge shortfall in the amount given to us from the divisible pool. The Centre may have given the money to balance the huge shortfall in the initial years. What’s important is that the state should get its rightful share from the country’s tax collection as a divisible pool. This year, when we should have received `36,000 crore, we only got `18,000 crore from the divisible pool. States like Chhattisgarh with smaller populations have received more. We are not against giving money to other states, but we must get our fair share.
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Can you explain...
When they make the calculations, they look at the number of toilets, schools and other indicators and say we are ‘developed’. So, we are paying the price for our progress. If you are not developed, you will get more. In the normal course, we should be appreciated and recognised for our developmental strides. Moreover, we face second-generation issues like changes in demography. Perhaps, no other state may be facing a similar issue. In the next 10 years, for every four elderly persons there will be only one income generating person in Kerala. It’s a dangerous situation.
Former Union finance minister and Congress leader P Chidambaram tweeted that you could have foregone the fuel cess and thereby have done away with `2,000 crore set aside to arrest price rise...
Chidambaram tweeted as a Congress leader. It’s his political opinion. It’s pertinent to note that Kerala, which imports most of its goods, including rice, had the lowest prices and lowest inflation in India last year. This was made possible by the government’s market intervention and social-welfare schemes. I’m confident that this year, too, we will be able to manage price rise through this method.
A major contributor to the financial crunch is the pay revision for government employees. Don’t you think it’s time to at least discuss the elephant in the room?
We have been implementing pay revision every five years, and we cannot say that is leading to the crisis. This time, however, there were additional concerns. We implemented the pay revision at a time when our income fell, due to Covid, Ockhi and other issues. So, the burden was magnified. Moreover,
pay-revision expenses were more than what we anticipated.
But isn’t there an element of injustice because private sector employees have seen a reduction in salary during Covid? Is pay revision mandatory every five years?
The agreement with service organisations is that the pay scale will be revised every five years. It’s not correct to say that there is no hike in salary in the private sector. Yes, it has not been in line with our hike.
The question is whether it’s time to rethink this revision every five years for government staff, who constitute only a small percentage of the population?
When we decided to pay salaries in instalments during the pandemic, it was projected as the biggest problem faced by the country. The government was cornered. There was no activity during the Covid period -- shops were shut and businesses were closed. There was no revenue. Despite this, we paid our employees in full.
But is it right to refrain from strong measures fearing backlash?
Even in the fuel cess issue, the state government has decided to charge Rs 2/litre at a time when the Centre is taking away Rs 20/litre. There is no protest from the opposition on the Centre’s huge cess. There is no protests by the opposition or the media.
Coming back to the issue of salaries for government employees, don’t you agree that the government’s focus is restricted only to a small section?
Teachers and government employees are a key segment for us and it’s the duty of the government to protect their rights and benefits. Kerala is perhaps one of the few remaining states where most appointments are made through PSC. But there needs to be a restructuring of posts following the advancement of technologies like e-files in government offices.
Will the government reintroduce statutory pensions?
The government has not thought about it till now.
Will you consider increasing the retirement age of government employees?
No.
Are you fearful of the controversy?
For the past one week, the way it has been portrayed as if the finance department has squeezed the public unnecessarily. Someone told me that I should have behaved like an uncle and not like a father. I asked him the difference. He said that uncle comes once in a while, gives chocolates and gifts, and the children are very fond of him while father scolds the kids and asks them to spend wisely. But, for the long-term betterment of the family what the father does is good for the children and the family.
Did you consult the party on fuel cess?
The secrecy of the budget was maintained. Yet, the decision reflects the interests of the Left front.
Was the proposal a last-minute decision?
All taxes are finalised at the last minute.
Why is the government not taking austerity measures?
There are several big and realistic options for austerity measures other than namesake things like foreign travel or vehicles. For instance, a proposal came for the new court complex in Kollam costing Rs 147 crore. We discussed with the judicial officers and cut the cost to below Rs 100 crore. A similar decision was taken on the new building for the MLA hostel. People criticise foreign trips. But they are ignorant of real measures taken by the government.
Will the government relook the numerous loss-making corporations and boards?
We want to decide on certain corporations and boards. Several boards can be merged. A study has to be conducted. There should be proper deployment of staff in government offices.
Isn’t it time for the government to change its role, from a provider to a supporter?
I support that. I’m for the government spending Rs 2,000 as part of an income-generating mechanism for a citizen rather than giving him Rs 1,000 for free. The interest subvention scheme for industries is based on that. ‘Make in Kerala’ and ‘Work Near Home’ are also based on this principle. We need new ideas. The land pooling proposed at Vizhinjam is a good PPP model.
Are you confident that budget announcements on revising fair value of land and property tax will bring the desired results?
Fair values were last fixed in 2010. Fair value is about 40-50% of market value in most places. Certainly, there is scope for revision. There may be mistakes. There is a provision to correct mistakes in valuation with the RDO. Fair value revision and property tax are among the few remaining avenues for the government to raise funds.
Can’t the government levy more fees from students hailing from affluent classes in the higher education sector?
The government has not thought of that. But an option for voluntary contribution is a good idea. The existing option is to donate to the CMDRF. I think there should be such facilities for people to make contributions to public hospitals and educational institutions.
Why did capital expenditure come down in the latest budget?
All capital expenditure did not reflect in the document. The Centre’s share for the Jalanidhi project was remitted directly to the KWA (water authority) account. The expenditure figure would have gone up if it was included. Also, the Rs 12,000 crore the KIIFB spent in the last two years was not covered. LSG spending is also not covered. Such issues will be addressed in future budgets.
Last year, we had an increase of 25% in GST revenue. Will we be able to keep up that momentum by plugging evasion and other measures?
Business should grow 25% every year. Pre-GST, the growth rate was 14%. The drop in the revenue-neutral rate of GST -- from 16% to 11 % -- was a big blow to Kerala.
Do you have a role model as FM?
All FMs are my models. All budgets of Left governments, starting with Achutha Menon, had a vision. Menon’s was the first deficit budget.
Another issue is related to the hike in liquor charges. Most popular brands are priced between Rs 500-1,000...
I agree that raising the price of any product is not good. For the last two years, the price of liquor has not been hiked. Since the government determines the price of liquor and even sells it, the price of the liquor has remained constant, unlike tea, biscuits and other essential items.
Do you consume liquor?
No. I don’t. (Chuckles)
Isn’t the 250% tax on liquor too much?
I don’t think so. Alcohol is the most taxed product across the world.
It is said that the use of drugs became popular when bars were closed during tenure of the last UDF government. Don’t you think a similar situation is emerging now?
What I understood is that the price of narcotics is much higher. Furthermore, the addictive nature of liquor and drugs is entirely different. So, liquor price rise will not lead to increased drug usage.
After the pandemic, the revenue of people from all sectors had declined. The per capita income is low in seven districts.
In Kerala, however, trends suggest revenue has started to increase from this year.
The tax imposed on four-wheelers is in the range of Rs 5 lakh-Rs 15 lakh. Will it affect the middle-class?
The highest tax is on vehicles costing over Rs 30 lakh. We had fixed the rate after comparing it with neighbouring states like Tamil Nadu and Karnataka. For vehicles in the range of Rs 5-15 lakh, the increase will be just Rs 20,000.
What has been the trend on inward remittances?
Remittances as a percentage have decreased. Foreign remittance growth has come down from over 20% to 13%. However, there is also a positive side to it. Though the percentage has come down, more money is coming in. The nature of remittance has also changed. Those who migrate to European countries don’t send home remittances, unlike those in Gulf countries.
TNIE team: Anil S, Rajesh Abraham, K S Sreejith, M S Vidyanandan, Harikrishna B (videos), B P Deepu (photos)
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