Kerala is famous for its long drawn policy for social sector development. The present LDF government is moving towards better social security and high salaried industry. But problems are many. The LDF supported GST. But what is its present experience of it? How is Kerala trying to achieve path breaking development policy? Dr T. M. Thomas Isaac, Minister for Finance & Coir of Kerala, talks about this to BE’s Kishore Kumar Biswas in an exclusive interview. Excerpts follow:
Q. After coming to power in Kerala in 2016 you published a white paper on the financial condition of the state. There it was mentioned that the growth rate of revenue of the state fell sharply during the last UDF government (2011-2016) compared to the last Achutanandan-led LDF government. How confident are you about reversing the situation?
A. The fall of revenue growth came down to 10% during the last LDF regime. It reached more than 17%, on the average, during the Achutanandan government. But we are yet to be confident enough to reverse the situation fully in the recent future. This is because we are to inherit many weaknesses in governance of revenue collection of the last UDF government, like corruption and non-transparency.
Q. Would you please elaborate on it in some detail?
A. The degeneration in the last UDF government was due to rampant corruption. This degeneration was not at the high level of administration. But at the lower level it was so rampant that it is difficult to put things back in track in a short time. This is why revenue generation of the last FY was not high. Even in the present year also we cannot have the desired result. In the last LDF government we were able to declare all the check posts corruption free. We announced a reward of Rs 25,000 to any person who can bring evidence of corruption at a check post. There was a social audit from truck drivers and other persons about whether they have any corruption allegation at the check posts.
Q. How was it possible?
A. By transferring a significant number of persons from one post to other posts or elsewhere was one. Another was better training given to them. Second, we provided free accommodation, free food and some other facilities to the staff. Third is the procedural change in collecting revenue like bringing transparency, setting up surveillance cameras. We had meetings with the revenue officers twice a month at the beginning and in every week in the latter part. Lastly, we gave rewards to those showing good performance.
Q. Will you not implement the previous method and regain the growth of collection?
A. In spite of all this experience we are doubtful about a very high growth of revenue collection. This is also because once something goes sour it is very difficult to turn it back. The VAT (value added tax) has exhausted its possibilities. There was a slack compared to KGST in the sales tax system. The VAT has reached its potential and hence a 20% or so growth of revenue is not an easy task.
Other point is that the Kerala economy is decelerating. This is why we supported the GST system. You know that Kerala is the destination state of a huge quantity of consumer or other produced goods. So in the new system our revenue was expected to grow by 20%. But in the actual situation our growth of revenue is just 10%. On the other hand our expenditure is growing by 20%.
Q. With such a huge revenue gap, how would you make it up to run the government?
A. There will be a huge deficit. There is little option to make up. Reduction of expenditure is one option.
Q. You supported the GST. What is your present experience about it? Will it not increase revenue to
the desired extent?
A. We expected the GST would enhance revenue. But now the GST is not in a good position. The administrative system of GST is not functional. About 80% of our consumption goods are imported to Kerala from other states of India. As GST is a destination based taxation system we could earn a bigger amount of revenue. But this is not happening now. The amount of inter-state trade revenue would have been double of what it is now. This is due to the existing huge leakage in the IGST system. Check posts are gone and the goods are entering freely. In my estimation Kerala has been losing Rs 700 to Rs 800 crore per month.
Q. Why are you not raising the issue?
A. We are raising the issue. The software is not ready to deal with the situation. The central government is saying that it will be all right by February 01. This is why we are to go for expenditure cut which is unpopular. I think we will be able to make people understand the situation.
Q. Is the IGST systemic weakness the main culprit
as of now?
A. Kerala has been losing huge revenue due to leakage. At the same time the recent reduction of rates of several commodities has lowered the tax burden of commodities by 40%. This is another way of having revenue loss in the state. Mind it, this reduction of tax rates has not been reflected in the prices of goods and consumers are not getting the benefit of that. The state revenue is the worst sufferer.
Q. Kerala is famous for remittances of money; almost 2 million skilled Keralites are working in foreign countries, mainly, in West Asia. On the other hand more than 2.5 million unskilled labourers, mainly from, West Bengal, Odisha and Bihar, are working in the state. What is its economic and social impact in Kerala?
A. More than 2 million skilled labourers are working outside. As they are skilled they earn a very good salary. There has been a huge demand for unskilled jobs in Kerala. These are filled by labourers from some states of India. Most of the educated Keralian youth do not prefer manual work but can do machine based manual work. Their aspiration is to go abroad and get a good salary. So we can afford outside unskilled workers. The outside workers get Rs 600 to Rs 800 per day on a regular basis which they could not get in their home state. They also earn more money here by doing overtime jobs. The Kerala government has extended welfare measures to outside workers, in many cases, those are similar to welfare extended to our home people. We have health insurance, cultural, literacy programmes for them.
At the same time there is also a cultural tension as workers from different places are coming to the state in a big way. But we have to pay more attention to them in social security. So when they go back they will have social security arrangements.
Q. Kerala is special in Peoples’ Plan. Has it been continuing or stopped?
A. No no. it has been going on. Peoples’ Plan means about 25% of the planned fund is given to the local governments. It is used in the development of local areas. To do this local governments raise local funds. It is going on continuously and cannot be stopped.
Q. Another interesting feature of the Kerala government (also Karnataka) is that in every 5 years you revise the pay structure. Although the amount is not as high as Central government hikes. How is it possible?
A. It has been the case in Kerala irrespective of the LDF or the UDF government.
Q. Kerala is famous for human resource development. But it is significantly weak in industrialisation or job creation. Is it due to the high wage structure or strong trade unionism or land acquisition problem or what?
A. It is true in Kerala employment opportunity has been more in the service sector. Recently we are trying to develop industry which has high value addition. Sectors like IT, bio-technology, light engineering, tourism and so on. These sectors create jobs with high salary. This needs private investment in a big way. That is why we are emphasising development of infrastructure like better connectivity, roads, etc., we are going to invest Rs 33,000 crore for this purpose.
Q. What will be your source of funds in this matter?
A. We need a total of Rs 50,000 crore. A separate company is being created to do all the fund raising activity. The company will take the responsibility of developing infrastructure. The government will give a guarantee of the future financial
grants to the company. For example, we have set up Kerala Industrial Infrastructure Funds. The government has legis-lated that 50% of the total motor vehicle tax of the state will be given to the company every year. It will be continued for 20 to 30 years or so. Then when the company goes to any bank for loan showing the government’s guaranteed source of finance then money will not be a problem. It is just like a financial innovation.
Q. Are you not interested in using bonds?
A. Yes, of course, we have invested in bonds. We are also planning for issuing bonds, like NRI bonds, floating Masala bonds, etc. to raise money. We have to set up a Fund Fedality Trust Board. There will be persons like Vinod Rai, Usha Thorat et al. to certify the organization.
Q. Then you are planning to take advantage of the new style of development?
A. Kerala is going to depend on a two pronged strategy. One is the social security of all its citizens, assuring them health, education, pension, etc. On the other hand more than 60% households are getting a pension of Rs 1,100 per month and every year it will be increased by `100. Secondly, is to set up high wage industry in the state. We have 5 missions. Housing to all ( Rs 4 lakh to every hose building), health, education, Green Kerala Mission (sanitation, water conservation, organic cultivation), good food.