Thiruvananthapuram: Post demonetisation, finance minister Dr T M Thomas Isaac has nothing much to cheer about; the state's tax collection has fallen below ground level, its large informal economy has virtually broken down, the plantation sector remains withered and wilted, joblessness is on the rise, and giving this glo0my scenario an apocalyptic feel, remittances have shrunk alarmingly in the last two years. But when union finance minister Arun Jaitley presents the Union Budget on February 1, there are three announcements that can bring a smile on Dr Isaac. One, higher borrowing limit for the states. "We have asked that the limit be raised from 3 percent to four percent of the GSDP. At least a 0.5 percent increase would be greatly appreciated," said Dr Isaac.
Two, a comprehensive insurance for commercial crops. "It is high time we made our cash crops more competitive. This calls for massive felling and replanting. And since the gestation period is high for such crops, the government should invest heavily to support the farmers during the interregnum," Dr Isaac said. He doesn't mind being indebted to Jaitley if he announces a package of at least Rs 1000 crore for plantation crops. Three, doubling the allocation for MGNREGS.
"Kerala has a huge informal sector and demonetisation has left a trail of destruction in these areas, especially agriculture and fisheries. At the moment we are able to provide jobs for only 50-60 days. If the allocation is vastly improved we can offer 100-120 days of employment in seriously affected areas," Isaac said. It is already a foregone conclusion that given the production constraints after demonetisation, Jaitley will be forced to discard controls and blow up his budgetary deficits. "We hope they will extend the freedom to the states, too," Isaac said.
According to Dr D Narayana, director of Gulati Institute of Finance and Taxation, Isaac should consider himself lucky if Centre extends even a semblance of help. Centre for Monitoring Indian Economy has revised the nation's GDP projection to 6.5 percent from a high of 8.5 percent before demonetisation. Central excise collections are expected to fall considerably with crude prices poised to go up. Central tax revenue has already shown a dip. The rate of growth of corporate taxes, too, is sluggish. "What is left then to pass on to the states," asks Dr Narayana.
Nonetheless, the new indirect tax regime, Goods and Services Tax, is expected to benefit the state. At the last GST Council meeting, states had wrested some crucial powers, especially the control over service tax and small traders. Yet, there are huge concerns. "It is not enough for the Centre to assure that states will be compensated for its losses. Like Finance Commission devolutions, the transfer has to be constitutionally guaranteed. We hope Jaitley will include this guarantee in the budget," Isaac said.
