Change policies to promote industry, manufacturing: Kerala finance minister

We need to promote indigenous industry and indigenous knowledge and translate them into industrial production, says Kerala Finance Minister K N Balagopal

In an interview with Jayanth Jacob, Kerala Finance Minister K N Balagopal debunks the notion that the state has labour problems, stresses why welfare measures are important, and reiterates the “harm” goods and services tax has caused to the states. Edited excerpts:

The Kerala model of development has won acclaim for making laudable strides in public health and education. But it remains a consumer state, hugely dependent on remittances. You have been talking about the state becoming a producing state in the near future. What is the basis of your confidence?

Service sector plays a key role in the state’s economy. As it is, Kerala’s unemployment rate is high. Nearly a million people have come back from abroad in the wake of Covid. Our key revenue-earning sector tourism is in trouble. Our first priority is addressing the pandemic. We were the first state in the country to declare free vaccines for all, before the Centre came around it.  

We need to address the health emergency in the best possible way so that industries can be back on track, and the tourism sector is back in action. To alleviate their sufferings, we are helping people both in cash and kind.  In this background, we are looking at rejuvenating industry and agriculture through some concerted efforts. For example, we have announced Cooperative Initiative for Agriculture Infrastructure in Kerala (CAIK) is aimed at shoring up capital investment for agriculture. We have a loan scheme for primary cooperatives at 4% interest aimed at increasing production. We are not saying that we will be producing everything that we need. We never had self-sufficiency in food grain production.  

But we have a lot of cash crops, and we are a unique landmass that can produce the rarest of fruits and vegetables. We have to reimagine how we see our plantations. We have chalked out plans to make funds available for cold chain facilities, and processing centres for making value added products from fruits, vegetables and spices that are aplenty in Kerala. Our idea is not self -sufficiency in everything that we consume, but increase economic activity and employment opportunities in areas where we effectively can. I see many people are willing to experiment with their ideas in this field, we need to handhold them, help them and ensure they can make industrial raw materials from agricultural products, get scale and market access. In the health sector also we are encouraging small and medium industries to come up with new products and ideas. We want to facilitate them via cheap loans and other help. 

When it comes to capital and making money, the general attitude of the people in the state — also known for militant trade unionism — is neither entrepreneurial nor encouraging. Yours is a cadre-based party, and you are a grassroots political leader who rose through the ranks. Are you confident of an attitudinal change among the people of the state?

The first part of your question stems from wrong perception. Please rectify it. Where are these labour issues now? Kerala has quality labour and we insist that the labour laws of the country are respected and minimum wages stipulated by law is given to workers. This in no way amounts to being anti-industry. There are many companies in Kerala in various sectors including IT that are making good profits. Then, Kerala means labour problem was part of a campaign from 1970 onwards, especially, that’s not true. The first communist government in the state in 1957 started major industries such as the rayon factory in Calicut, Toshia-Anand had a unit in the state in the second communist government’s time. 

The problem is that the industrial atmosphere in the country has to change. Take the example of China, Taiwan, Japan or any of any Far Eastern countries and see how the government policies helped fostering new ideas and entrepreneurs in those countries. That’s what we need and the government of India needs to change its policies to promote industries and the manufacturing sector. We need to promote indigenous industry and indigenous knowledge and translate them into industrial production. 

Kerala has a vast network of co-operatives. They enjoy considerable popular support and political patronage. But barring a very few, the industries in the cooperative sector await some big take-offs. Why is it so?  

          

There are some co-operatives in Kerala such as Milma (a milk cooperative like Amul), that are household names and trusted brands. Then, due to the cartelization by multinationals, some of them find it very difficult to get market visibility. Some of these cooperative companies that were making quality products ended up making stuff for these multinationals. There are cooperatives that have earned a name for themselves—be it Amul or Mother dairy for milk or ice cream. Such credible cooperative brands can make a difference. Amul is among the top 20 milk brands in the world led by Nestle. It takes time to build a brand like Amul, this is something we too aim for. 

Agree that Kerala model is also known for sending quality manpower abroad. Now various studies point to major reverse migration. How will you deal with this coupled with high unemployment? 

As we discussed earlier, more than one million people had come back to the state from various countries. Some of them have gone back, some more will go back once the situation in those countries improves. Since most of these people are highly -skilled we have launched a knowledge mission to help them.  There are many welfare and service measures that we have initiated which includes financial assistance, medical assistance and loans for new ventures.  

Welfare is at the heart of the policies of your government, and that helped you win a second consecutive term. But the state’s public debt is around 35 per cent of gross domestic product (GDP). Even if you discount the exigencies brought about by Covid, is it something that is sustainable?

Running welfare schemes are very important for the government. We have a universal and free system of distributing food grains and grocery to all people. 50 lakh deserving people are getting one welfare pension or other, at an average of Rs 1650 per month. That’s some vital help for these people. I am not saying it’s a big amount. Along with inexpensive public healthcare and a heavily subsidized public distribution system, this pension is a real help to those people. In the wake of Covid, we have extended the reach of these pension schemes to people in the unorganized sector. 

Welfare measures are the duty of a government in a country where income of the people is coming down and employment rates are going up. Kerala also has other problems. We have an aging population and we will soon be faced with the challenges from geriatric issues. It is wrong to assume that the welfare measures are affecting our economic health. Then don’t forget due to covid every state is in need of more money. Even an industrialized state such as Gujarat has a mounting debt issue. Covid is a once in a century issue and we cannot bother much about debt while dealing with massive pandemic.  

You have consistently raised concern over goods and services tax (GST) and made a dissent note to the select committee when you were a Rajya Sabha member in 2015. Your predecessor thought as a consumer state Kerala would benefit from GST. Where do you stand now as finance minister of the state? 

The Left parties had opposed the GST in the select committee and I had prepared a dissent note. Our primary contention was that GST would destroy our federal stricture, economic independence of the states.  Barring a very few items, the states did not have any taxation  rights.  We contended the states would end up with begging bowls before the centre and the state finance ministers would end up as mere distributors of whatever they would get from the centre. There had been expectations that consumer states like Kerala could benefit from the GST, but the reality is different. Even when they were such expectations, the CPI(M) raised concerns over GST from an ideological standpoint 

You have been arguing against Centre having a bigger role in GST than having envisaged in the constitution. The GST is going against cooperative federalism. Is your opposition to the GST more on political grounds than economic grounds? 

Our opposition to GST was both political and economic. We are dealing with the political economy of the country. As I had asked during the GST bill discussion in parliament, why is there no GST in the US, which is the most celebrated free market and capitalist economy in the world? The states have many special rights in the US. Unfavorable taxation policies and migration issues were the triggers to the UK move out of European Union. . The GST can work against the interests of the state, their rights to levy taxes. For example, states used to raise taxes to protect certain domestic industries. But that is no longer possible. 

In the case of natural calamities, states used to impose surcharges or small levies to raise resources. Now the states will have to get the approval of the Centre for the same. In many ways, it is against the principles of cooperative federalism. The concept of nation state revolved around taxation power or military power. The first power is taxation power, and the way this power is vested with a government—state or centre-- defines a lot of things in our federal structure. The average GST tax rate came down from 16 per cent to 11.5 per cent. Then there are issues such as indivisible cess that the Central government imposes on petroleum products which are not shared with the states. The Centre government continues to have a stranglehold over taxation. In view of the financial woes that the states are facing after the pandemic, I urge and Centre to be more considerate to the demands of the states in meeting the demands. 

Is there any consensus in the opposition-ruled states on the GST concerns that you have been vocal about?  

There are serious apprehensions among the states that the Centre wants to encroach upon whatever little taxation power is left with them. That is a serious concern. This shouldn’t be seen as a political issue either by the Centre or by the states. The idea is that the states should have enough money at hand, and taxation power. If the situation is getting worse than what it was before GST in terms of people’s living standards and states’ economic situation, then, I think it is incumbent upon the states to get these concerns addressed. There should be candid and open discussions between the states and Centre to address these concerns. There are ongoing conversations among the states on these concerns.  

Kerala is also facing a crisis in agriculture that many experts and leaders of the ruling party say is due to international treaties and the state has also failed to bring in value addition to the produce?  

    

There are serious concerns on this front. Especially after the ASEAN trade deal under the Congress government the prices of cash crops have taken a major hit. It has many implications for our economy. It is working on many levels. We even have examples like bad quality tea being imported and mixed with Indian tea, which has led to a drop in demand of Indian tea on account of quality. The Congress leaders had been touting this deal as a landmark that would help our country. Major dip in the prices of natural rubber too is a result of this pact. If we get into a free trade pact with European Union, chances are very high that our dairy sector will be deeply hurt. Our aim should be to protect our farmers, incubate and encourage the innovative ideas of our young entrepreneurs rather than helping increase the export of the countries through free trade pacts. Why a country as big as resourceful as ours lagging behind countries like China? We must think about that. We are of the view that free trade agreements such as the ASEAN agreement needs to be re-examined because they have hit the interests of our farmers very hard.