Kerala finance minister Thomas Isaac is one of the most articulate members of the GST Council. A trained economist, Isaac is a votary of fiscal federalism.
Kerala finance minister Thomas Isaac is one of the most articulate members of the GST Council. A trained economist, Isaac is a votary of fiscal federalism. In an exclusive interaction with Financial Express Online, he spoke on topics ranging from the economic slowdown, possible ways to boost growth, and problems faced by the Kerala economy.
Here are the edited excerpts:
On tackling economic slowdown
The Union government is working hard to boost the economy, but there is hardly any consultation with state governments. The states together spend more money than the Union government. So any plan to tackle the slowdown should be rolled out in consultation with state governments.
It is clear that the slowdown is due to a collapse of aggregate demand. The Union government’s focus has been on incentivising private investment. We are not against that. But the kind of tax cuts will not have an immediate impact on demand. A more straightforward approach will be to leave more money in the hands of people. Maybe the government should double the allocation for MGNREGA and extend its scope to urban areas. It can also aggressively make credit available for consumer durables.
The central government has already laid out a plan for an ambitious infrastructure programme, which should be put into action. The government should not fear a rise in the fiscal deficit. Put more money in the hands of consumers. That kind of option doesn’t exist for state governments due to the FRBM Act.
On Kerala economy in crisis
Kerala was slipping into a regional slowdown, so the national economic slowdown will affect the state very badly. The global economy slips into a recession as it did in 2009, there will be huge trouble in the Gulf region. The impact on Kerala would be tremendous. It is very important that we understand the regional dimensions of the slowdown. We should have regional strategies for stimulus rather than a single national plan. The state government finances are very severely strained. The revenues are growing at about 10%, while the expenditure is rising by 15-16%. It is very difficult to cut expenditure as the state cannot go back on social commitments such as education, health, and welfare.
On Kerala’s massive off-budget infrastructure plan
The Kerala government has launched an ambitious off-budget spending programme. We have created SPVs that will invest Rs 50,000 crore in infrastructure. Projects worth Rs 10,000 crore have been tendered and implemented. This year, we are expecting projects worth another Rs 20,000 crore on the ground.