In an interview to TNM in January, Kerala Finance TM Thomas Isaac had said that the deluge that had ravaged the state in August last year had hit the state’s growth rate, dropping to the lowest in three decades.
Now, the state’s economy has been further hit by the Centre’s move to cut down its annual borrowing limit. The Centre has effected a cut of Rs 6,000 crore in its borrowing limit for the ongoing financial year. The Centre’s decision is applicable solely for Kerala and has come as a result of deposits to the tune of Rs 6,000 crore to the state’s treasury.
The Centre’s move has aggravated the financial crisis, Thomas Isaac tells TNM, candidly admitting that there is indeed a crisis.
“Yes, there’s a financial crisis in the state. But this is not something which occurred overnight. This has been in the making since 2013-2014. Till then, starting from 2007-2008 when the Left government was ruling, the revenue of the state was rising at 20% per annum and the expenditure by 15-16%. Obviously this was a period of fiscal consolidation. But things began to change in 2013-2014 when revenues began to decline, dropping to 10% in 2013-2014, and has remained under this level since then. We were thinking that GST would help us to move to a higher plain; but GST as a system hasn’t taken place yet. It will take a few more months for GST’s potential to come into play fully. Then I am sure that Kerala’s revenue will be once again definitely growing at a rate of 15-16% per annum,” the minister tells TNM in an interview.
“Since 2013-2014, the expenditure has continued to grow at 15-16% as in the past, but revenue declined to 10-12% and there was a big gap. And this gap was bridged by accepting deposits to the treasury and postponing a variety of actions. Now the central government has taken a position that we can’t do that. They say that we have taken Rs 6,000 crore without authorisation through treasury deposits and that our current borrowing will be cut to that extent. My position is that I don’t need anybody’s authorisation to accept deposits to the treasury and these deposits were largely contributions of employee arrears impounded into provident fund.
“But the central government is unwilling to accept this explanation. And therefore our borrowing has been cut from Rs 24,000 crore as budgeted to something like Rs 18,000 crore. And this has created a severe fiscal crisis. The borrowing limit has been cut at a time when the state is still trying to recover from the devastation caused by the floods. We have been asking the Centre to allow us to borrow 3% of our GDP, but instead of increasing it they have cut it by 0.5%. This is most unfortunate and is creating a severe fiscal strain. When I assumed charge in 2016, I had brought in a white paper on the fiscal crisis and had said that we will move towards fiscal consolidation because we’re going to make all efforts to increase our revenue. And we were hopeful that GST would help, but it hasn’t,” he says.
Is the Centre’s move political?
Thomas Isaac says, “The Centre and state governments have different political persuasions, but I won’t comment that the move is political. But I would still give a benefit of doubt that this is ideologically motivated. And some senior officials or politicians believe in cutting down the borrowing limit and they are more loyal than the king in that. Well I would leave this level, at this time. I am still hopeful that the Centre would consider the state’s demand. If they don’t, we will have to think they are closing their eyes to the harsh realities of the state.”
Arguing that the borrowing limit should be enhanced for any state that has faced a natural disaster in order to finance its expenditure, the Kerala FM notes, “Another demand of the state prior to the Union Budget was the Centre’s support for stabilisation of rubber price... but the budget neglected our demand.”
Will Kerala reduce the interest rate on treasury deposits to discourage deposits and thereby make the Centre rethink its decision?
“I am not going to reduce interest rate of treasury deposit,” he says.
So how then does the state plan to tide over the crisis?
“We don’t have additional powers of taxation but we’re going to collect all the tax arrears – collectable tax arrears would come to around Rs 5,000 crore, and to stop the leakage in GST that is taking place. This year we are hopeful of collecting around Rs 3,000 crore and making a determined effort towards that,” says the FM.
In addition to this, the state also hopes to increase the non-tax revenue by increasing some of the fees and fines. Thomas Isaac says, “We are hopeful that this year the overall revenue will increase by 20%, we are halfway through it. GST annual returns will come in August, only after getting the returns we can find the tax evaders. We are readying for a massive move in August to collect tax arrears, scrutinise reports, conduct enforcement activities and also to beef up surveillance at the borders.”
Would this alone help considering the damage caused by the floods?
“There is no other way. Even if we resorted to austerity measures, that would only make a marginal difference. Right now, the focus is on increasing revenue, we are postponing cutting expenditure for the time being,” he says.
What caused the controversy over stopping the Karunya Benevolent Fund scheme, which has been merged into the new Karunya Arogya Suraksha Paddhathi (KASP)?
The Kerala FM says, “The total number of beneficiaries under the Karunya scheme last year was 13,000. We are enhancing Karunya with an insurance scheme that will cover 42 lakh people – that is KASP. That’s a big difference. Secondly, the coverage has been increased from Rs 2 lakh assistance in Karunya to Rs 5 lakh in the new scheme. But there are some people who got the benefits of Karunya but are not covered under KASP, for them we are going to make special provisions to get medical assistance from accredited hospitals. Also, certain procedures and illnesses that were covered under Karunya are not covered under KASP – the government will take care of the expenses of such procedures and treatments. But some people intentionally created a controversy, they are trying to romanticise Karunya.
Some people are asking why can’t we run both the schemes. Well, that is silly. Karunya was very liberal in keeping accounts, where you had the freedom to do whatever you wanted… many hospitals had stayed out of the insurance of scheme even for critical illnesses. In the first three months of the year both Karunya and KASP were running together. Even middle-income hospitals which were earlier in smaller schemes like RSBY (Rashtriya Swasthya Bima Yojana) used to keep out of Karunya. If you run all the schemes together it will ruin KASP.”
The BJP is back in power, do you still expect the Centre’s support?
“BJP is suffering from megalomania, they became victorious by communalisation and also because of jingoistic nationalism from the Pulwama attack. Now having won, they are buying the Congress, the opposition… such is their money power, they can buy everybody. They are thinking of an India without opposition – that shall not be,” alleges Isaac.
Hitting out the BJP-led Centre, he goes on to allege, “The crisis in the Indian economy is so deep; their window dressing won’t help. In the Union Budget, they have overestimated the revenue. The actual data for revenue collection in 2018-2019 is less than Rs 1 lakh crore from the budgeted revenue; but this has not been taken into consideration in the present budget. They are still playing with their imaginative estimate and hence didn’t account for the sharp decline in GST; and they are going to face serious trouble. They are going to mitigate it by taking over the reserves of the RBI, SEBI and so on; but that will only aggravate the crisis when it comes. When the crisis deepens, people are going to come out and the BJP is going to be in serious trouble; their megalomaniac plans would be exposed.”
On Rahul Gandhi quitting as Congress leader?
“Maturity and greatness in leadership comes not when you are winning but when you are losing. When you rally a demoralised force, take them forward. But Rahul has refused to shoulder that historic responsibility and a leaderless Congress is at its lowest today. It’s a virtual decimation of the Congress that is taking place. It’s sad that the main opposition party is succumbing to the purchasing power of the BJP in this manner. At least now Rahul should come and lead his party,” says Thomas Isaac.