Kerala is staring at a fiscal crisis. While the tax revenue decreased after the switch to the Goods and Services Act, government departments continue to splash money without a care for the future. The return of the expatriate Malayalis has only added to the government woes.
Finance minister T M Thomas Isaac shares his views on the economy and finances ahead of the crucial budget season.
Government departments are spendthrifts. Why can’t the finance department do anything about it?
It is true that government departments could spend funds the way they wanted until the very beginning of the financial crisis. Expenses shoot up when we want to do things in style. We can definitely rein in those expenses.
We have send out a strong message to the officers and administrators that things cannot be the way they used to be. So there will be strict cost-cutting in the coming years.
Departments are buying cars for no reason and create thousands of posts without taking into consideration the financial burden. Why can't you control it?
We have to restrict car purchases. Many institutions do not even need a car. We have to encourage them to rent a car if necessary. Cars, their drivers and the maintenance are very expensive. 'Manorama' did well in pointing out this in a series of reports. We would also need pressure from the public to implement many things. We cannot allow any extravaganza. We need strong pubic opinion to correct the tendency. The people should come out and demand a reduction in government expenses. We cannot roll out any such reforms without a consensus.
Can we expect cost-cutting measures in the budget?
Definitely. The budget I am going to present on February 2 will be one that matches expenses with revenue and reduces the revenue deficit. When I say deficit will be cut, it means nothing but unnecessary expenses will be restricted. We can relax norms on spending only when revenue increases. We do not intend to borrow and spend. You will know it when the budget is presented. At the same time, I guarantee that the government will not cut down any welfare measures for the poor. We will spent enough money for development of the education and healthcare sectors.
We spend whatever we borrow on salaries and pension.
Many people who want the government to cut costs suggest that we decrease the pay and perks of the government staff. I agree that we should be able to limit these expenses to a certain percentage of our revenue. We cannot create more posts than we could afford to. But the government is more concerned about improving the performance of the employees. We need a big change.
What can we expect from the budget?
The states lost their ability tax after the introduction of the GST. So there is no rooms for speculation on which commodities will become dearer or cheaper. You can expect measures to increase revenue. We will continue the stress on welfare on security as we did in the previous two budgets.
We are heading into a financial year when projects of Rs 20,000 crore announced under the Kerala Infrastructure Investment Fund Board move to the implementation stage. People have been criticizing the KIIFB for the slow progress of projects. Let me remind them that the projects using Nabard loans are often delayed up to three years. We formed the KIIFB only one-and-a-half year ago. The KIIFB’s first loan was Rs 5,000 crore at 8 percent interest. It has been decided.
You got it right when you denounced demonetization but your observation that the GST will improve Kerala's finances has drawn flak, even in the CPM conventions.
Demonetization was utter nonsense. The GST is different. The system's main drawback is that it takes away the states' power to tax. Our tax powers were curtailed when the value-added tax (VAT) was introduced. Though we did not lose the tax authority officially, it was significantly limited by the VAT. That was the background when a committee of state finance ministers, chaired by the then West Bengal finance minister Asim Dasgupta, started talks about moving to a GST. Though all the states were in favor of it initially, the move was scuttled by the BJP. But we had discussed a lot of measures to protect the states' interests.
This line of thinking changed when Dasgupta relinquished the post of the chair. The general framework had been accepted by the time I became a member of the committee for the second time. I did not expect the Union government to implement the GST so carelessly. They could even run the GST portal flawlessly even after six months. That has led to massive drop in tax collection. That is why Kerala has not seen an increase in tax collection as we had expected.
We have been told that the next GST Council is likely to discuss stamp duty and registration as well. Kerala will strongly oppose any such move. We will also resort to legal remedies. The GST Council has no right to rob the state of its powers.
I still believe that Kerala's revenue would increase 20 per cent due to the GST. But we will have to wait for another year.