Thiruvananthapuram: Former finance minister Dr T. M. Thomas Isaac said that the state could be transformed into a “care economy”, its capital expenditure stepped up considerably and still its burgeoning revenue deficit could be brought down to zero. This fiscal consolidation, Isaac said, could be achieved in three years.
Dr Isaac laid down his economic strategy while presenting a paper on ‘Fiscal Consolidation for Self-Sustaining Economic Growth: Kerala Experience and the Way Ahead’ along with IRS official R. Mohan at CDS here on Wednesday. He wants a strategic re-orientation of the development policy. One, the state will have to shift to industrial sectors more appropriate to its resource endowments, like knowledge-based industries. Two, the state should provide total social security, creating what he calls a “care economy”. Three, state should invest heavily in maintaining the social sector infrastructure, especially health and education.
Isaac wants social spending to go hand in hand with a big step up of capital expenditure. But for this the revenue deficit has to be zero. “Unless RD is zero, it is not possible to increase capital expenditure or to borrow to invest in infrastructure,” Dr Isaac said. The solution: expand tax receipts without tinkering with the rates.
According to R Mohan, the state has not fully tapped its tax potential. “Now, the share of state’s own revenue in GSDP has fallen below 8 percent. Even if GST is not accounted for, we can raise it to 10.6-10.75 percent of GSDP,” Mr Mohan said. If GST, which he expects will roll out from 2017, is factored in, it can go up to 11.75 percent. He said that during the UDF tenure the difference between potential tax collection and actual had widened to 30 percent.
Here is how Isaac proposes to get the massive funds needed for the infra push. “We are going to circumvent the FRBM Act and resort to off-budget borrowing.” He suggested an SPV formed through legislation with a clean balance sheet, and an assured future income flow.
