To all intents and purposes, Kerala’s new Finance Minister, K.N Balagopal will be a man in a hurry.
For starters, he got just about a fortnight to present his first budget tomorrow. The external environment is the most unfriendly ever in Kerala’s history as it is all over the world.
People’s expectations are high, they want Government benevolence and benefits to continue. And his boss is a hard task-master who has no time for policies, programmes and plans. Chief Minister Pinarayi Vijayan is more like a corporate CEO now, looking for results. Get me concrete outcomes, everything else can wait, is what his approach is.
The new FM begins with certain advantages.
• There is money in the State’s coffers for any spending that he may like to take up this financial year. These are spillover funds under the additional loans allowed by the Centre for Covid impact of last year and then, the GST compensation amount of about Rs 5000 crores. So he can breathe easy there, in the immediate term.
• KIIFB, as a medium for infrastructure development, is no longer an issue for debate. Results have been seen in almost all the constituencies of a school being modernised, a hospital refurbished or a road laid. That provides Balagopal space to push forward the Government-led investment agenda for physical and social infrastructure. The vehicle is there, he just has to navigate it.
• His job will be to provide continuity of policies and concentrate more on the “micros” of what is promised in the LDF’s election manifesto. He does not have to undo anything before he starts doing something, in a sense.
But what are the challenges?
Even a child knows that these are difficult times and the incomes of people and economic output has been hit hard. Many pockets, especially of those in the unorganised/non-salaried class, are either empty or fast emptying. Most units in the small and micro segments —industry, business and services — are shut down.
The Governor told the new Assembly that the State Domestic Product as of the end of March 2021 was 3.82% lower than the previous year (‘19-‘20). That year, the growth was about 2.58% as per the State Planning Board’s Economic Review presented to the House in January. So Kerala’s economy now is smaller than what we were in March 2019.
This year again the first quarter is a washout and we have to wait and see when economic activity can improve. Unless the shops open, services resume and people start working again, there is no likelihood of economic growth. And we badly need growth to happen. Then only can jobs be protected, livelihoods rebuilt, consumption happens and the economic cycle becomes “virtuous” or creates “ surplus value”.
Welfarism, which has helped LDF ride back to power to a great extent, has economic limitations. While it is a necessary condition for revival in a recession, that will not be sufficient. Continued for long it may even have perverse outcomes for the overall economy. While welfare dole-outs will work as a band-aid, they cannot be a permanent cure for addressing income-inequality issues.
Another issue staring the State in its face is the return of the Non-Resident Keralites. More than 2.50 lakh men and women have returned after Covid started wreaking havoc abroad. They do not have any job to do. The State has to necessarily support them to find meaningful and commercial activities here.
Thankfully, the LDF’s manifesto is a purposeful and focused approach paper for addressing these issues. Its design reflects good thinking. But money will be required to implement these promises. While those related to education, healthcare, welfare for the aged and children can only be out of State funding, there are several other sectors where the financial institutions including the Kerala Bank and other banks could play a role. Also, the State’s debt at about Rs 3.25 lakh crores is substantial and further borrowing should be for CapEx.
Out of the 50-point programme listed at the beginning of the Manifesto, 20 are items where bank funding can support the implementation of the ideas. As Government’s borrowing is already high what Kerala should do is to support responsible borrowing by individuals, business enterprises and all economic agents from the banks.
The Government can offer some support by way of interest subsidies for these borrowings. If it can further sweeten the ecosystem by creating the following two structures for enabling collections and. Repayment, we would have a winning combination of the State, banks and economic agents working together to add value:
• In sectors like tourism and food processing, involve “cohorts” (industry associations/groups) to mediate and build enough “social pressure” so that “wilful default” and “diversion of loan funds” do not happen. This approach can be tried wherever feasible.
• Where individuals are the borrowers, let either the local bodies like the panchayats or Self-Help Groups or Joint-Liability Groups monitored in Mission mode work towards assuring lenders that the networks will ringfence default. The women have already proved this point through the “Kudumbasree” model.
Banks will then lend. They have surplus deposits. In Kerala, they are looking at “viable” opportunities to dispense credit.
Therefore what is expected on June 4 is a blueprint for putting the State’s economy back on the growth track. The 900-point addendum to the LDF manifesto is an ideological thesis, enough to fill Balagopal’s maiden offering as the Finance Minister. For a man who is a Commerce postgraduate, a lawyer and a hugely acclaimed ex-Member of the Rajya Sabha, this honeymoon will be exciting. It is hoped that it proves to be rewarding too.
(S Adikesavan is Chief General Manager with SBI working from Thiruvananthapuram. Views expressed are personal.)