Kerala facing unprecedented economic crisis: Finance minister KN Balagopal

The Kerala government is anticipating an unprecedented financial crisis in the upcoming fiscal year, coinciding with the Lok Sabha elections. Balancing the imperative to maximize revenue with the need to implement numerous populist public projects poses a formidable challenge for the government. Finance Minister KN Balagopal sheds light on how he plans to navigate these challenges in the annual budget, set to be presented on February 5, revealing his concerns and outlining strategic plans in this interview.

What are the main challenges you face in the budget this time?
The main challenges we face in the budget this time are profound, given the unprecedented financial difficulties that the state is facing. While the Centre is claiming 63 per cent of the country's total revenue, the states bear 64 per cent of the total expenditure. Unfortunately, Kerala is grossly neglected in receiving its rightful share from the collected taxes. Our tax share has dwindled from 3.8 per cent to a mere 1.9 per cent, leading to an anticipated reduction of Rs 20,000 crore.

Will the crisis be over if the Centre is blamed?
What is happening is that 70 per cent of our entire property is being taken away, and we are being denied what we are entitled to. In the past, we used to receive 46 per cent of the total revenue income from the Centre. Last year, this decreased to 35 per cent, and this year it further dropped to 29 per cent. It is noteworthy that Kerala receives one of the lowest central allocations in the country. Former Union Minister P Chidambaram, upon learning about these figures, questioned how we manage our finances in such a situation. This led us to pursue legal avenues, including approaching the Supreme Court with the case. However, the state government is also exploring alternative strategies to move forward, and there will be announcements regarding this in the forthcoming budget. 

There are indications that all sectors are facing a severe financial crisis. What measures are expected in the budget to address this slowdown?
All states, including Kerala, are experiencing this financial downturn. From next year onwards, the entire world is expected to undergo yet another round of financial recession. The decrease in the price of cement itself is an indication of the crisis faced by the construction sector, partly due to ongoing conflicts such as war. This crisis should be addressed by ensuring that the maximum amount of money reaches the people. Actually, the central government is the entity that can effectively carry out such interventions. Owing to the non-cooperation of the Centre, we estimate that the amount due to Kerala will decrease by Rs 57,000 crore. How can a state that spends around Rs 1,70,000 crore a year withstand a deficit of Rs 57,000 crore?

Can we expect an anti-recession package in the budget?
Either the Centre should allocate the states their due share, or the borrowing limit should be increased. If the borrowing limit is raised by one percent, an additional borrowing capacity of up to Rs 12,000 crore becomes possible. This additional funding can be directed towards anti-recessionary measures. Simultaneously, it is crucial to avoid any reduction in the borrowing limit. You can definitely anticipate comprehensive measures to combat recession in the upcoming budget.

Did the money borrowed through channels like KIIFB during the first regime of the Pinarayi government and the additional cost incurred through salary revision worsen the crisis?
There is no doubt that KIIFB is a commendable model. The crisis escalated because the central government halted it. KIIFB has undertaken projects amounting to Rs 80,000 crore thus far, and Kerala can certainly repay this amount gradually. Simultaneously, there is a need for income-generating projects. The government anticipates substantial revenue through initiatives like industrial corridors. The central government is also implementing projects on a similar model as KIIFB by taking loans. Regarding salary revision, it was deemed necessary at that time.

As for the current situation, either the Centre should change its stance or the Supreme Court verdict should be in our favour. If neither of these scenarios unfolds, what is the state government’s Plan B?
Regardless of the Centre’s actions, Kerala will not fail or collapse. Previous ministers never faced such neglect from the Centre. We cannot abandon the Kerala model, and we will progress by generating our own income.

There is an amount to the tune of Rs 40,000 crore due to government employees and others on various accounts. Can this be paid?
That amount is not accurate, and that much is not due. There have always been arrears in the dearness allowance of government employees, and the payment of pending dues following salary revisions has been a recurring practice in the past.

The promise in the LDF manifesto to increase welfare pension to Rs 2,500 is not being implemented, and it has been five months since even the existing pension amount has been paid.
During the period of the previous Oommen Chandy government, welfare pension arrears stretched for 18 months. While the pension was Rs 600 then, we are currently paying Rs 1,600. As stated in the manifesto, the desire is to increase it to Rs 2,500. Recent news reported a person’s suicide due to non-payment of the pension for five months. However, the reality is that he wrote a letter requesting pension in November 2023. It is essential to note that we require Rs 900 crore to pay one month’s pension. Welfare pension is provided by the government in good faith and compassion, and you should not approach the court to obtain it.

If you have to generate your own income, you should be able to collect taxes properly and introduce new taxes, fees. Is this correct?
Taxes will indeed be collected, focusing on those who can afford to pay. There are some sectors that have been enjoying tax exemption for a long period. Additionally, certain taxes collected by other states are absent in Kerala. Efforts will be made to increase income by identifying such areas. There will be no increase in taxes that people cannot afford. Some taxes have remained unchanged for about 40 years, and we will identify and adjust them accordingly.

There is a recommendation before the government to increase the pension age of government employees. What about that? Will the contributory pension scheme be withdrawn?
As of now, the government is not considering the recommendation to increase the pension age. Regarding the contributory pension, an official committee has been assigned the task of studying the issue.