Devolution of resources to states isn’t charity: Kerala finance minister

There are specific reasons for the financial issues being faced by the state and most of these are mainly centred on the present practice of the Centre-state relations

Kerala finance minister K N Balagopal has said the Centre’s “anti-federal policies” have pushed the state into a financial crisis. In an interview to Ramesh Babu, he said devolution of national resources to states is not a charity but a constitutional obligation. Edited excerpts:

KN Balagopal (Wikimedia Commons)

What is the financial position of Kerala as there are reports that the state is in the red?

The financial position is not good but one cannot say it is in the red or in crisis. It is similar to many other states facing problems because of the anti-federal policies of the Union government. The situation aggravated after the pandemic and the Ukraine development. One cannot say Kerala is having a more difficult situation than other states. The withdrawal of almost 85% of the currency in November 2016 and unscientific introduction of GST and the outbreak of Covid put tremendous pressure on the state. Revenue of the state was going down but expenditure kept going up. As per the 15th Finance Commission report, 62.7% of the total receipt goes to the union government while 62.4% of the expenditure commitments are to states. There are certain specific reasons for the financial issues being faced by the state. Most of these issues are mainly centred on the present practice of the Centre-state relations.

You are a critic of the Union government and often complain about GST dues...

We are making some concrete analysis of the socio-economic condition of the country. First of all, we are demanding a justifiable share of revenue which belongs to states. National resources must equitably be shared among states. The devolution of national resources to states is not a charity but a constitutional obligation. It is good that recently the Union government decided to release the GST dues to the states up to May. But the basic demand of states including Kerala is to extend the GST compensation beyond June but it is yet to be taken up. One cannot say the GST Council’s functioning is in a democratic manner. The basic voting pattern of the council itself is flawed; it is in favour of the Union government.

Is there a step-motherly attitude towards non-Bharatiya Janata Party-ruled states?

People who watch these developments may think that there is a step-motherly attitude to states which are ruled by political parties other than the ruling party at the Centre. The devolution of financial resources is done through recommendations of the finance commissions. However, the states are never consulted while constituting the commissions. The Sarkaria and Punchhi Commissions insisted states are to be consulted while constituting the finance commission. This was not accepted. The finance commission recommends tax share and grant-in-aid. The recent phenomenon is to reduce the statutory transfers and increase the discretionary transfers. In the process, the Centre has discretionary powers to decide the quantum of the grant to the states.

Another issue faced by states like Kerala is that their Human Development Index is highest compared to other states. States, which earmark huge resources for the development of citizens, are being actually punished. Kerala’s share in the divisible pool was 3.875% during the 10th Finance Commission award period. During the 15th Finance period, it came down to 1.925%. We oppose this type of approach. You cannot punish us for our good index.

How are you planning to generate more revenue?

States have limited options to increase revenue in any manner after the introduction of the GST regime. ...petrol, diesel and liquor are the only areas in which states have any control over taxation and revenue generation. The lottery is a different portfolio, where tax is under GST. As the central government encroaches upon the petrol and diesel taxation and levies huge cess and special excise duties, states have limitations in imposing a tax.

To increase revenue, we are attempting to restructure our GST system. Efficient collection of tax is being done through various methods. We are giving importance to the computerisation of the revenue department to raise income other than taxes like registration charge of land etc. The fair price of land is being made more scientific for generating more income from land registration. Few special taxes like Green Tax are being imposed for the purpose of increasing income and for supporting the green energy efforts.