A day before he presents the all-important state budget for the 2019-20 fiscal year, Kerala finance minister TM Thomas Isaac underlined that the economic impact of the devastating floods last year coupled with poor implementation of the Goods and Services Tax (GST) and internal leakages in the collection of VAT has affected the state’s fiscal health.
In an exclusive interview with The Indian Express, Isaac said, “Kerala’s fiscal situation is bad. It’s because we have been adopting expansive stands on development but GST has belied our hopes. We are still 13-15% behind the projected revenue. Our whole mean fiscal policy was premised upon a 20% growth on GST. Kerala being a consumer state, that was naturally our expectation. More than that, during the previous governments from 2006-14, VAT was growing at 18-19% pa. Now it’s very slow primarily because of internal leakages.”
Isaac, an MLA from Alappuzha district which bore the brunt of the floods last year, said it will be suicidal for the government not to go for an expansive budget as it has the responsibility to get the economy ticking again by spending more.
“The state is facing a major downward risk. One, in the case of Gulf returnees, the net migration has become negative. It has not affected remittances but it has dampened the spending spirit. Now floods alone have resulted in a 1.5% reduction in expected growth. That will be the lowest growth rate in Kerala since 1987,” he said.
“Therefore I will take the risk of assuming that we will be able to overcome the disadvantages of bad GST implementation, move towards fiscal consolidation through a greater collection of GST and also have a larger plan for investment,” he added.
This is the tenth budget that the 66-year-old will present and possibly his toughest. He was the finance minister during the previous LDF regime under Chief Minister VS Achuthanandan. Many say that the budget he will present will have to factor in the funds required to put Kerala on the path of reconstruction.
An August 21 report by rating agency Care Ratings had said that in the backdrop of the floods, the state’s GDP growth was expected to fall to 6.5-7% from the budgeted 7.6% in FY 2019. The services sector, including the tourism sector, as well as the agricultural sector with major losses to plantation crops like coconut and banana, had all been hit hard by the floods. Nearly 500 people have died in the floods, thousands of homes submerged.
Post the floods, the Kerala government was allowed by the Centre to impose a 1% cess on the GST for two years to deal with the calamity.
One of the major highlights of the budget that Isaac will present on Thursday will be a comprehensive universal primary health care programme aimed at covering 50 per cent of the population. This will be notwithstanding the Ayushman Bharat health insurance program of the Centre that Kerala has agreed to adopt.
“It is going to be an important programme. A universal free primary healthcare topping it up with a universal health assurance model which will cover about 50% of the population. Then, about rest 20-30% can voluntarily pay the premium and join because the aggregation makes the premiums much low,” he said.
The Left-ruled Kerala government and the BJP-led Centre had wrangled on the subject of rolling out the Ayushman Bharat scheme in the state. Isaac, then and now, has criticized the modalities of the ambitious programme.
“Ayushman Bharat has two components. One, they want to set up a primary health care system for which there is no additional money. But Kerala has been spending money. Second, if we are going to expand on the existing insurance scheme in secondary and tertiary sectors, we will require a minimum of R’s 1000 crores. But Centre is providing only Rs 100 crores, so what are they claiming so much credit for?” Isaac argued.
He said his government has agreed to adopt the existing program to fall within the framework of the Ayushman Bharat scheme.
On attracting investments and improving the state’s position on the Ease of Doing Business rankings, the finance minister said he was confident that results would begin to show in the next two years as the government has started taking serious note of reforming certain practices.
‘We are getting into single window clearance and land acquisition programmes. At least two dozen corporate investments, especially in the knowledge sector, are coming to Kerala, ‘ he said.
With the interim Budget scheduled to be presented just a day after Isaac’s budget, he said it is very likely that in an election year, the government at the Centre would use it to announce sops.
“They are not going to be judged by what they did because that track record is really bad. I’m expecting that they will have to do some basic income support scheme. Or something for farmers because the rural sector is in turmoil,” said Isaac.