Why is Centre so stingy with spending amid Covid crisis, says Kerala FM

Kerala FM Thomas Isaac says the state could face a severe financial crisis if the Centre does not increase the borrowing limit by 1% of GDP

Kerala, with other states, is planning to drag the Centre to the Supreme Court for not paying their GST dues worth Rs 40,000 crore, with another Rs 40,000 crore of integrated goods and services tax pending. In the light of Covid-19, Kerala Finance Minister Thomas Isaac, in an interview with Dilasha Seth, says the state could face a severe financial crisis if the Centre does not increase the borrowing limit by 1% of GDP. Edited Excerpts:

How do you assess the Centre’s response to fight coronavirus? Is Rs 1.7 trillion relief sufficient?

The relief offered is disappointing. While the Centre has locked down the nation and a majority of people have lost employment, it has offered them a meagre Rs 500 a month. Of course, there is free, additional ration, but that is just not sufficient if you look at the kind of relief being given elsewhere. The UK is paying 80 per cent salary to the self-employed and workers. 

What are the areas the Centre needs to increase allocation to?

This was an opportune moment to institutionalise social-security programmes. First, it would be good to have a universal pension scheme for the unorganised sector, not just the people below the poverty line. A pension scheme of Rs 1,000-2,000 should be in place. Kerala gives Rs 1,200 to 5.5 million. The Centre’s share is Rs 6.8 lakh. 

The Mahatma Gandhi National Rural Employment Act (MGNREGA) wage increase is doubtful because only people who get 100 days’ employment will get that. During Covid there will be no MGNREGA programme. The amount should be transferred to every MGNREGA account with a monthly average of payment made last year. The National Health Mission allocation should also double.

Kerala announced a Covid package of Rs 20,000 crore. Amid the constrained state finances and dues pending from the Centre, how much will you borrow from the market?

The Centre doesn’t think of the states. We have to manage the crisis. At least, it should pay what is due to us, like the GST compensation cess. It should permit states to borrow an additional 1 per cent of GDP. We have permitted borrowing Rs 27,000 crore for next year and wish to borrow half that upfront, and spend it in April-May during lockdown.

Are you hopeful the Centre will increase your borrowing limit as the economy seems set to nosedive in 2020-21?

This is a big risk we are taking, and it can mean serious trouble later but let’s hope good sense will prevail as the world is changing fast. National income will be in negative territory in FY21. World growth is also going to be negative. The US, being so conservative, has announced a $2-trillion package. Others are also spending. Why is the Indian government being so stingy about spending? I am certain the Centre will be forced by circumstances to change its position.

Where are your discussions with the Centre headed on the pending GST dues?

Kerala is to get Rs 3,000 crore. It is big money for a state like Kerala. The tragedy is that we are at the end of March and Centre has unlawfully kept Rs 40,000 crore due to states. It has kept integrated GST in the Consolidated Fund instead of distributing the money to the states. It has given us only 42 per cent, which comes as devolution, whereas 50 per cent IGST should have come to the states. We lost around Rs 40,000 crore. 

GST and cess collection may get tougher. Compensation requirements will sharply rise, but do you expect the Centre to pay you in that case?

Collection was bad in March. In April, there will be hardly any due to the lockdown. So the Centre should give us compensation. It can allow the GST Council to borrow and pay and extend the cess for one more year.

The law permits GST Council to borrow?

There is a compensation fund, in which other monies can also be put. This is what we were given to believe. If the Centre doesn’t want to borrow, it can permit the fund to borrow. These are things that can be done without affecting central government’s finances.

A meeting was to be called by the finance minister two weeks after the Parliament session ended to discuss borrowing by the GST Council...

The finance minister is taking her own time. No emergency meeting have been called yet. They can have done a video-conference. There is no option other than the states approaching the Supreme Court. I am pushing for that. Puducherry and West Bengal have been very vocal on this.