Kerala in a tough position, but will keep promises, says CM V D Satheesan

Kerala plans to tackle its fiscal crisis through investments, blue economy, land reforms, diaspora funding and a silver economy, says CM V D Satheesan

It faces a fiscal crisis, with debt crossing ₹5 trillion, but Kerala plans to bounce back by attracting investments, carrying out land reforms, promoting the blue economy, and using an ageing population to its advantage. Chief Minister V D Satheesan, who also holds the finance portfolio, tells Shine Jacob in an interview in Kochi about the road map. Edited excerpts:   Kerala has a debt of more than ₹5 trillion and the debt-to gross state domestic product (GSDP) ratio stands at 35.5 per cent — one of the highest in the country. How do you see the crisis? 

This is a very serious matter. We have published a white paper on the state’s fiscal health. That was not a political statement; it is a proper fiscal document for the future of the state. We have to understand the real fiscal situation. It is very clear in the document that we have a debt of ₹5.07 trillion, and we have around ₹87,000 crore of immediate liabilities and pending arrears left by the previous Left Democratic Front (LDF) government. 

The last government created an extra-budgetary mechanism called the Kerala Infrastructure Investment Fund Board. I opposed this concept at its very inception. The LDF government said that it would not come under the Fiscal Responsibility and Budget Management Act. I said this was against the Constitution and that the experiment itself was very bad because the basic corpus was from the Consolidated Fund, that is, motor vehicle cess. It was under the sovereign guarantee of the state, and there was no income generation from that. I requested them to ensure that at least 50 per cent of the projects should be income-generating to repay debts or pay interest. 

Now, all liabilities are coming to the Consolidated Fund. The government of India has included that amount in the limit of our debt, which accounts for roughly 3 per cent of the state’s GSDP. 

We are in a tough position. However, we have to make welfare promises and also progress with the state’s development. The problem with Kerala is that 77 per cent of our state revenue goes for committed expenditure like salaries, pensions, and interest. When we are getting ₹100; we can only spend ₹23 out of that for welfare and development purposes. These are the compulsions.

 

What is your roadmap to overcome this crisis? 

In the first Budget of the United Democratic Front government, I have not imposed any new tax. Our approach is very different; we believe that increasing tax will not help. Two years ago, the LDF government increased the petroleum cess. I said that this is not the right way, as the move will reduce revenue because consumption will also decline. 

After one year, I said on the floor of the House that 15 million litres of diesel consumption had dipped after the decision, as trucks filled their tanks outside the state. We lost a huge amount on other taxes as well. 

Our first idea is to broaden the tax network, which is the modern way. If we increase tax, there is a tendency to evade it. If it is reasonable, people will pay. We have to find out ways to broaden the tax network. 

The second part is better financial management by finding ways to increase revenue. Our government is losing tax revenue. Our approach to the business and trade community is different; we will have to see them as a genuine tax base. They have to be protected. 

When there is an issue due to global pressure or domestic factors, some sectors may be in trouble and we must support them. We have to give them ventilator support in a pressure situation. Our idea is to protect genuine taxpayers through good financial management.

 

Could you elaborate, please? 

We have to watch what is happening in the fiscal world. From Kerala’s point of view, we have to prevent huge leakage from the exchequer. The main thing is project implementation. If the government declares a project of ₹100 crore, for two years nothing will happen. It will take five to ten years to get implemented. Then the cost will escalate to ₹1,000 crore. 

If this delay happened in the private sector, an official would be accountable. On the government side, nobody is accountable. The major problem is land acquisition. It takes a lot of time in Kerala, and we are not able to provide land within two years of the contractual period. That way, the contractor becomes safe and can argue in arbitration that the government has not even transferred the land to me in two years. 

In arbitration too, we are losing a huge amount. Hence, we are bringing in a protocol for project management from the very beginning.

 

Kerala has its own set of industry challenges, too. Isn’t it? 

The fourth thing is stimulating the economy through activities; only then can we fill the exchequer. For that, investments should come. We have a proper plan in place, lining up Kerala's advantages and disadvantages. A major disadvantage is land. In the Western Ghats, there are strict forest laws and land cannot be used. In central Kerala, there is the Paddy Act regulation, and in the 600-kilometre coastal area, we have Coastal Regulation Zone rules. 

The second disadvantage is the density of the population. There are constraints in starting a business due to issues like pollution. Another concern is that investors are not coming due to a bad perception caused by trade union militancy.

 

What about the state's blue economy? 

Then comes the advantage of having a 600-kilometre coastline, two international seaports, one container terminal, and 18 mini ports. Our dream is to integrate all these ports and convert Kerala into a port city [hub]. 

Vizhinjam Port, Cochin Port and the container terminal are good. We now have to develop smaller ports. We should integrate them and start using them for logistics through the sea route. This is vital because the density of vehicles on our roads is very high. Our target is to divert at least 50 per cent of logistics from the road to the sea, as the expense will be one-fourth. The second is cruise shipping and the integration of all the 44 rivers and lakes with this project for tourism development. That way, tourism can be developed. 

We were the leader in seafood exports once but unfortunately, for the past 10 years, we have been losing this business to Andhra Pradesh. We have to win that tag back. Nobody watched this decline. We have to convince investors that this is a good place for seafood processing and exports. 

[The blue economy] should be sustainable. We have to protect the biodiversity of the sea. All our projects should ensure sustainability. We also have to protect the people who are living in the coastal areas.

 

What are your plans for agriculture? 

In agriculture, we are planning changes by announcing Land Reforms 2.0. Almost all tea plantations are closed due to various issues. So, we have to make changes to the Land Reforms Act on the condition of ecotourism. 

We are also going to allow multi-cropping, following the Southeast Asia model. They are producing avocado and other expensive fruits. Kerala’s climate is the same tropical climate, so we are going to allow farmers to have multiple crops based on the condition of ensuring value addition. We have made a preliminary study on this, and finally we will make it into an amendment to the legislation. 

What about investments in manufacturing? 

We are deviating from the conventional practices. Somebody is trying to project this as privatisation. This is not privatisation. We have declared a Southern Economic Corridor — Thiruvananthapuram for port businesses, Kollam as our mineral corridor, and Alappuzha will have a fisheries-based blue economy. That is our roadmap. 

We do not have the money but for certain projects we will give land as equity. If we are forced to create money, we can have a public issue. We have a large diaspora contributing to our remittance economy, which we want to convert into an investment economy. We are going to start investment desks across the Gulf countries.

 

Can you tell us about your new department for the elderly population? 

Nobody has so far noticed the demographic changes in Kerala. It is happening rapidly. By 2036, our projection is that the state will have 38 per cent senior citizens, double the national average at that time. Our demographic dividend population, or youngsters, is becoming very thin. This is a major demographic change. 

Initially, we have declared a department for senior citizens for the first time in India. Our approach is not a welfare approach but a silver economy. We want to make them more constructive. 

We are going to invite ideas for startups and hand-hold them. Then youngsters will come. One person may be an expert in technology but may not have any idea about management and finance. We will provide a management mentor from this pool of experienced senior citizens. This can be replicated across all professions. That will also generate revenue for the aged. 

We are already number one in the world in nursing, and we are now going to start certificate courses for caregivers in nursing colleges and hospitals. Nobody will be left out; the silver economy is going to be huge. 

What are your views on the One Nation, One Election plan by the BJP-led central government? 

It has to be passed by Parliament with a two-thirds majority. I don’t think that they will get that majority. It has to be studied properly. They are planning to double the number of constituencies and all. 

We have implemented family planning properly as per the demand of the government of India. Now, we are being penalised for that. Even in financial devolution, we are being penalised for that.

 

Any plans to bring in foreign universities? 

We have declared many projects, including a maritime museum and a Knowledge Valley. We are going to make amendments to bring foreign universities to Kerala. We have declared a Knowledge Valley in tie-up with legacy universities. A team will visit all the global universities immediately after the passage of this legislation. This will happen within a short time.