Kochi: The mismanagement of public finances in Kerala has reached a point of no return posing a serious challenge to the survival of the society, says eminent economist MA Oommen. In an interview to the DC on the development challenges and the financial situation facing the state Dr. Oommen stressed on the importance for stemming the distortions in the tax collection system in the state.
The prevailing system of tax collection system in the state can be termed at the best as an example of the mismanagement of public finances. Facilitating tax avoidance is equivalent to non-collection of taxes, he pointed out. The use of information technology tools can be deployed effectively to check the incidents of tax avoidance and tax evasion to a great extent. “The question is whether the authorities concerned are having the necessary will to do so”, he said. Dr. Oommen has also pointed out that budget in the state has been used as an instrument of corruption for the past few years and dismissed the claims by the authorities that the state would attain a quality of life equal to the Scandinavian countries by 2030.
Q: Sir, you have questioned the wisdom of the Kerala Government that the state would be on par with the Scandinavian countries by 2030. What are the reasons for your criticism?
A: This is clearly a farfetched idea. The claim has been made in the Perspective Plan 2030 brought out in four-volumes by Kerala State Planning Board. The Perspective Plan has claimed that the state will be on par with Scandinavian countries in terms of purchasing power parity by 2030. This is a totally unachievable claim without any basis. To reach the levels of Scandinavian countries in terms of purchasing parity the per capita income of the state needed to reach the levels of $36,000. In terms of purchasing parity level, the per capita income of Kerala is around $ 4,700. This is an extremely fallacious idea without taking into account the economic and social realities of the state. The linear progression paradigm in the perspective plan fails to take into account many other vital factors such as the quality of life and the ecological overkill on the life of the people in the state.
I am deeply concerned over the ecological over kill taking place in the state. The terminology such as quarry mafia, sand mafia and similar such terms show the serious threat facing the ecological wealth of the state at many levels. We have nothing much to be proud of the kind of devastation being inflicted on the natural environment of the state. The ecological overkill is having a direct bearing on the quality of life of the people. The increasing levels of pollution in the overall atmosphere and toxicity levels in the water bodies will have bearing on the life of the people. It is now well known that the economically and socially vulnerable sections of the society are the worst hit by the degradation of ecology. In such a situation can we hope to have a quality of life on par with Sweden, Denmark or Finland in another 15 years? I think it is an untenable idea.
Q: You have drawn a comparison in the tax system prevailing in Kerala and the Scandinavian countries and stated that the progressive tax system prevailing in the later cannot be compared with Kerala.
A: The Scandinavian countries have progressive tax system while the reverse is true for Kerala. A progressive tax system is marked by the high share of direct taxes in the total tax kitty compared with the indirect taxes. In Kerala, the proportion of direct tax declined to 13.3 per cent in 2000-01 from 45.6 per cent in 1957-58, while the share of indirect taxes moved up to 54 per cent to 86.7 per cent in 2000-01. I have pointed out elsewhere that public provisioning for education, healthcare and social security entitlement should be reasonably high around 6-9 per cent GDP for each item in the Scandinavian countries. On all these grounds Kerala’s performance leaves many things to be desired.
Q: You have been consistent in your criticism of the tax avoidance system prevailing in the state. How far tax avoidance is posing a serious challenge to the economic development of Kerala?
A: There is now doubt that the prevailing system of tax avoidance is having debilitating impact on the public finances of the state. I have pointed out several times the mismatch between the tax receipts and consumption expenditure of Kerala. Kerala is top in terms of per capita consumer expenditure. But, the state is ranked a low of 8th in the ratio of per capita VAT to per capita consumer expenditure. Kerala, a state way below in monthly per capita consumer expenditure (MPCE) in the country in 1972-73 emerged as the top in MPCE in 1999-2000. The MPCE in Kerala which was Rs 545 in 1972-73 rose to Rs 32,658 in 2011-12 representing an increase of 60 times in a 40-year period. Despite such a galloping increase in the consumer expenditure the trend is not reflected in the tax receipts of the state. The tax potential of white goods, construction sector, gold jewelry etc remains largely untapped. In think corruption plays a major role in the prevalence of such a lopsided tax regime. In this connection I have mentioned that in Kerala, budget has become a means of corruption than an instrument for efficient and equitable mobilization of revenue.
