Kerala FM Balagopal uses budget presentation to criticise Centre’s alleged infringements on fiscal federalism

Mr. Balagopal made a clarion call to other non-BJP-ruled States to join Kerala in the fight against what he termed attempts to “demolish the federal values of the Indian Constitution”

February 03, 2023 01:59 pm | Updated 04:19 pm IST - Thiruvananthapuram

Kerala Finance Minister K.N. Balagopal presents the State Budget 2023-24 in the Assembly, in Thiruvananthapuram, on Feb. 3, 2023.

Kerala Finance Minister K.N. Balagopal presents the State Budget 2023-24 in the Assembly, in Thiruvananthapuram, on Feb. 3, 2023. | Photo Credit: PTI

Finance Minister K.N. Balagopal used his budget presentation in the Kerala Legislative Assembly for 2023-24 fiscal to essay a critique of the Centre’s “conservative financial policies”.

He said the centrist policies ran against the grain of fiscal federalism enshrined in the Constitution and squeezed the budgetary space of States to muster resources for infrastructure development.

Politically loaded speech

In a politically loaded budget speech, Mr. Balagopal made a clarion call to other non-Bharatiya Janata Party (BJP)-ruled States and regional powers to join Kerala in the fight against what he termed attempts to “demolish the federal values of the Indian Constitution and reduce the fiscal space of States”.

The Finance Minister promised, “activities will be devised in coordination with other States to protect federal values”, he said.

Kerala’s resiliency to adversity

Mr. Balagopal stressed Kerala’s storied resiliency against adversities by recalling the State’s legacy of relegating the colonial caste-feudal-land lord hegemony to the dustbin of history through mass political resistance and the mustering of public will to transform it into a modern welfare polity moored to secular and liberal values.

He underscored the challenges to fiscal federalism as a serious threat faced by the State. “Centralisation of power and disregard for States, especially Kerala, has increased unprecedentedly”.

He said provincial governments were hard-pressed to circumvent the Centre’s “strict and rigid norms”. Their taxation powers were limited.

Slashed borrowing limit

The Centre has slashed the borrowing limit of States unjustifiably. Infrastructure development and social welfare were the causalities.

In an appeal to other regional powers, Mr. Balagopal said: “We have to understand the situation and move forward irrespective of party politics”.

Mr. Balagopal’s averment seemed to dovetail with the Left Democratic Front (LDF) political gambit to forge a broad agreement with regional parties heading non-BJP-ruled States to resist the Centre’s perceived infringements on fiscal federalism and alleged attempts to whittle down the budgetary independence of provincial governments.

Corporate debt crisis

He also looked at the recent corporate sector debt crisis caused by the Centre’s relaxed borrowing norms for big businesses. “We are not of the opinion that loans should only be given to the bad debt corporates from the hard-earned money of common folks invested in various financial institutions”, he said.

Instead, the Centre should allow States to funnel such public funds for developmental activities by relaxing its conservative stance on borrowings.

“Kerala is not in a debt trap”

Mr. Balagopal assured the public that Kerala was not in a debt trap. It had the economic flexibility to raise loans for infrastructure development from the open financial market.

He dispelled attempts to portray Kerala as a “hopeless land” with no future for youth. Mr. Balagopal condemned the bid to “belittle” the Kerala model of development and assured Kerala would disappoint “these cynics”.

Divisive pool

The divisive pool share of States’ revenue has come down drastically. Kerala has lost ₹6,700 crores due to the Centre’s reduction of the revenue deficit grant. The cessation of GST compensation has cost the exchequer ₹7000 crores.

The Centre has done States’ a disfavour by accounting borrowings by State-owned public sector units and special purpose vehicles as debt liability to haul down the borrowing limit of provincial governments.

The Centre’s restrictions on the market borrowing limit have hit resource mobilization for infrastructure development by an estimated ₹4000 crores. Centrally sponsored schemes have bypassed Kerala.

An oblique challenge to State BJP

In an oblique challenge to the Bharatiya Janata Party’s (BJP) State leadership, Mr. Balagopal asked: “Can anyone with a commitment to the people of Kerala justify the situation? One whose side are those who celebrate this disregard stand?”.

Mr. Balagopal said the Centre’s conservative approach towards borrowings had placed hard budget constraints on the State. He called the Centre’s “conservative financial policy” the biggest challenge to Kerala’s alternate development model.

He said if the human development index, per capita income and consumption and sustainable development index were any indicators, Kerala was a frontline State. It had surmounted the COVID-19-induced challenges and cast aside the gloom of the pandemic years.

Global recession

Mr. Balagopal said Kerala could not exist in isolation. Kerala has the lowest inflation rate in the country. However, it would leave no stone unturned to insulate families from the shockwaves of worsening global inflation.

Kerala could ill afford to close a blind eye to the World Bank’s prediction that the next fiscal would be one of a global recession.

The downturn would impact traditional industries and the plantation sector the most. The government has forked over ₹2000 crores to fund the State’s “vigorous market interventions” to mitigate the looming cost of living crisis. Hence, the budget enhanced rubber cultivation subsidies to ₹600 crores.

Mr. Balagopal said Kerala has endured despite being battered by global economic headwinds and the Centre’s stubborn financially conservative stance on borrowings for development. Despite the adversities, the budget met the government’s obligations to the public.

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