 "TM Thomas Isaac")
T M Thomas Isaac, finance minister of Kerala, has presented a Budget that has been lauded by many. In an interview with T E Narasimhan, Isaac explains the government's plans for creating new opportunities as its traditional revenue streams are under threat. Edited Excerpts.
How alarming is Kerala's financial position?
Kerala's fiscal crisis is due to the continuous increase in the revenue deficit during the last five years. There was a reduction last year, but it was managed primarily by postponing expenditure to the next year. If the present trend continues, the revenue deficit will cross the fiscal deficit threshold permitted for the state.
The size of debt in relation to the gross state domestic product is well below the limit allowed. But 70 per cent of borrowings are being diverted to meet current expenditure. Capital expenditure is falling. The main cause for the situation is a sharp decline in tax revenue, which averaged 10-12 per cent in the last three years.
How you are going to manage?
It is not possible to compress expenditure like salaries and interest payments. And you do not want to cut the development plan. But I will attempt to curtail non-plan revenue expenditure. The focus will have to be on how to increase revenue receipts.
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You have set a target of increasing tax revenue by 25 per cent every year...
Tax leakage, according to my estimate, is 30-40 per cent. We are devising methods to plug this. We have brought e-governance into tax administration. Taxpayers can upload bills and about 1 per cent of the bills every month will be paid a prize five times the tax they paid. We are also changing the law to make it mandatory for dealers to upload their bills the moment they write them.
Last month, tax collection increased to 19 per cent compared to the previous year. I am sure of achieving the 25 per cent target, which will bring down the revenue deficit slowly.
Next year I need to pay all arrears. The bunching of this payment is going to be terrible. Revenue also will increase next year. Third year from now, revenue deficit will start declining. For two years I will bank on collection. By that time, hopefully, the goods and services tax will kick in.
How will the GST help Kerala?
We are a consumer state, we are also have a high intensity of services, so we stand to benefit.
What is the idea behind the Rs 12,000-crore anti-recession package announced in the budget?
Kerala's growth rate is below the national average. If the Gulf crisis continues it will be a calamity for the state. Kerala’s commercial crop is so regional that rest of the county does not bother about it. Farmers are making less than half of what they did three years ago.
We came up with a stimulus package to bootstrap the economy. The money will be used to develop infrastructure, tourism, information technology parks, and a land bank of 5,000 acres.
We are going about it in a systematic fashion by tapping the bond market, infrastructure funds and municipal bonds. We are also planning land acquisition bonds.
Is your government more open to industrialisation?
The government's policy is clear, we want to create quality jobs in infotech, biotechnology, tourism and light engineering. We are not averse to private participation but we will not wait for it. We want to double the size of the infotech industry and foreign tourist arrivals. We want to create an industrial corridor from Kochi to Coimbatore.
How bad are the Gulf and plantation crises?
We are rolling out Rs 500 crore to support the rubber price, which dropped significantly. Now coconut growers are also demanding relief, which is an additional burden.
The Gulf crisis is real. Around Rs 1 lakh crore remittance contributes nearly 30-35 per cent of Kerala's economy. Remittances have started coming down.
What is your vision?
As far as the financial situation is concerned, by year five our revenue deficit will be in control and will be reduced to 0.5 per cent. Capex will be Rs 20,000-25,000 crore every year.
