Kerala FM T.M. Thomas Isaac Talks to Vijay Prashad @ LeftWord

Before the elections, Kerala's finance minister T.M. Thomas Isaac, who has also written several books (some of them for LeftWord), sat down for a little chat with our chief editor Vijay Prashad. In this short interview, Isaac briefly explains how they're trying to do things differently in Kerala, keeping in mind that people want dignity as much as they want bread.

A rough transcript of their talk has been included below the video.

Vijay Prasad (VP): Hello! Welcome. I am Vijay Prashad with LeftWord Books, and I'm so deeply honoured and pleased to have one of our authors – very prolific author for LeftWord Books – Thomas Isaac who is . . . the Finance Minister of Kerala. Also, of course, has written for us two previous books. One, my favourite on popular planning. Excellent book! And then one of our very special books on cooperatives and, well, possible communism; and now Challenges to Indian Fiscal Federalism, a book just out from us, a title that we very much hope that you'll read. Welcome to LeftWord. Nice to have you. Tell us a little bit about the challenges that you face as a communist finance minister in a state in the Indian Union.

T.M. Thomas Issac (TI): Well, the book was prompted by the compulsions of practice. Now, as finance minister . . . the last Left government also . . . The short period . . . things have changed so much. I suddenly realized I do not have the fiscal space I was used to, say, five years back and this had to be addressed. So I joined with other ministerial colleagues. Occasion came when the Finance Commission, 15th Finance Commission, began to take evidence. Suddenly, it was so evident that the central government was trying to use this Finance Commission to further limit the fiscal space of the states. So our six southern finance ministers in India came together. We wrote a scathing attack on the Terms of Reference of the Finance Commission. We went to the President saying that the Terms of Reference must be changed and I think we were successful in forcing certain introspection by the Finance Commission itself. Now, to take the fight forward I thought it is important that we put down on paper in a substantial way issues that we were raising, and that was the context in which this book was written.

VP: So that's the context of federalism and the fiscal space afforded by the central government to states, constitutionally mandated and so on.

TI: Right . . .

VP: Just to expand this a little bit, has there been any kind of narrowing of fiscal options for Kerala specifically since it's the last Left government in India? I mean has there been any pressure from banks in terms of, you know, lending money to the state for projects? Has there been any other non-federal pressure on the state?

TI: Oh! Very much. I don't think it would have been possible to undertake the Kerala experiment today, which we have been . . . a legacy we have been carrying forward for the last, say, let's put it – 100 years. It's a legacy driven by the movements from below. Forcing the governments – royal governments and the successive popular governments – which came to adopt a policy of redistribution. Now, [the] policy of redistribution is not only redistribution of income and assets but, very importantly, social provisioning of basic needs – education, health, social security and so on. Now once you chose this path . . . you need to spend a considerable amount of your resources for this purpose. Which in [the] accounting system is known as revenue expenditure. So we have chosen a path of development where the focus is on revenue expenditure, on expenditure on human resources and we have benefited from that. One, we have been successful in providing a decent life to ordinary citizens, which is denied to most of Indians today. But today there are Fiscal Responsibility and Budget Management Acts, which say your revenue expenditure cannot be more than your revenue income. Revenue deficit must be zero. Now, if you are going to spend all your money on building big national highway[s] or on a big dam, well, there is no recurring expenditure, there's no revenue expenditure – build . . . it's done. But if you build a college you have to continuously pay for the staff. So you have historically chosen that path. Suddenly you find you are a state with [a] big revenue deficit, which the law prohibits. But what can you do? This is their accounting system. I can argue: I consider expenditure in education as a capital expenditure, it's an investment in human capital. But the accounting system does not accept that explanation. So they're forcing me to curtail my expenditure on public education, public health and so on. So, you see, that option of a Left government which they enjoyed, that Kerala enjoyed in the past, is being closed today. So that's one move.

But now we have come to this particular stage of development where it is not enough to have better human resources that . . . to produce quality jobs for better human resources in Kerala. Now, if we fail to do that, then the right is going to say: you guys, you cannot do this, you have done your historical duty of redistribution, now make way for development; we want jobs. So I want to say no. We have an agenda. Okay, you want to develop, say, infrastructure. You want to have, say, investment in sectors which are more appropriate for human resource in Kerala. We'll do it. But . . . there is no money in the budget . . . sufficient money in the budget because you are spending more on revenue expenditure in public healthcare and education. So you have to borrow money to do this. You are not borrowing money for spending on salary. But there is a ceiling. You can't spend more than . . . borrow more than 3% of your GSDP. But that says some 20,000 crores of rupees. If we want to modernize our roads, say, in a . . . period of five years you need 50,000 crores of rupees. How long are you going to wait? You want to have . . . not bullet train, not that . . . but we want to have an arterial . . . high . . . median speed train [in] Kerala to take away the traffic from the road.

VP: Very good idea.

TI: . . . 50,000 crores! So, say, you can't do that. That's a rule. You can't do that. So . . . they tell you no, no, no, you can't do that. We like to go around, work our way around. So are they . . . I mean this begs the question of are there workarounds for the state. Yes, we are trying to work around, get around. Say, therefore, . . . is same. All right, [the] government can build all this but let's set up a public sector unit. Whose job is to . . . build this? So, then, what is the creditworthiness of this public sector unit to borrow? So you legislate, say, well, the government shall every year give a proportion of its tax to this. So this public sector unit can tell big money market, well, look here. Here is my future income flow from government guaranteed by legislation. I'm going to get half my Motor Vehicles tax year after year. So, in a period of 20 years, I'm going to get 1 lakh crores of money from the . . . State . . .

VP: That's a very clever idea.

TI: . . . and therefore give me money. I'll pay you back and securitize my future income flow . . . that's [how] our public sector unit[s] come. So this is one way of getting around. Okay, so if fiscal policy is also not confirming . . . Left alternative, how to get around these rule books and try to build people's sovereignty? Kerala is not willing to give up its path of redistribution and public provisioning of social goods. At the same time, we want to create quality jobs within Kerala, transform our infrastructure . . .

VP: Can I just ask you a question about that? Because, I mean the idea of quality jobs . . . of course comes out of everybody's mouth. But it looks in this global economic situation that more and more people are going to suffer through precarious employment than have quality jobs. I mean the ILO, for instance, has a programme called decent work and it's been trying to get governments to provide decent work rather than precarious work. So how is the state of Kerala which is after all a state in the Indian Union, which has its one path of development as a, you know, federated structure . . . how is Kerala going to break from what is really a . . . global logjam on the question of jobs?

TI: That's a very tough challenge and that's the reason we are underlying the importance of [the] public sector. We have a big public sector, which has not been functioning efficiently, I must admit. But one major . . . great achievement of the last Left government was we made all this public sector . . . industrial public sector units, working up . . . to work on profit, providing decent jobs. We want to repeat it again and we want to tell the private sector, look here. You're welcome here. We will provide you [with] whatever infrastructure you require. You want port connectivity, you want internet connectivity, you want skill training in a particular manner – we [will] give you. But you have to provide decent jobs. Now, there are certain things non-negotiable in Kerala. You can't treat [the] environment the way you like. You have to respect labour rights. Within that you are welcome, we want you. If our public sector can function profitably, why can't you? And that is the significance of making the public sector work efficiently and profitably. And that becomes part of the Left alternative. Now fiscal federalism . . . the central government is selling off all the public assets and here state government is trying to preserve . . . and therefore they consider all this a waste and therefore they put various pressures on you. For example, now we have one airport in Kerala run by a government-led company. It's a private-public partnership, but [the] government appoints its chairman and MD. It's the most profitable venture in Kerala. Therefore, we have started another airport in the same manner. So, in this context, now, [the] central government is selling off Trivandrum airport, capital city airport. We tell them, you give it to us. We'll run it. They said no. You won't do it. We wonder if our model is . . . business model is different. So we said give us a first option. We will buy from you. No, no, no. You have to compete in the market environment. Okay, we are forming a company to tender for the airport to take it over. I am confident. We can run it. If we can run Kochi airport profitably, why not Trivandrum airport? But you know you are challenging the fiscal parameters set by the central government in this, in a sense. So this is one part. They have made certain rules . . . how you can behave and function. That's a limit to, new challenge to, federal autonomy. Two, they are using Constitutional institutions like, say, Finance Commission to impose conditionalities on the state government to deny the right share of the devolution and so forth. Like that, say, the administrative, legal and so [on], constraints increasingly on the state government . . . All the state governments may not share our concern. But nevertheless, we are making the issue, the question of federalism, as a central issue in the political debate today.

. . . Yes, I see, the sense . . . this book is important since this is going to be [the] subject of a major seminar where we are going to invite all finance ministers of India to come and discuss. Many, at least a dozen of them, have agreed. Hopefully, before the election itself, towards the end of February, we will have such a major get-together in Delhi where [a] majority of the finance ministers will come and they will have to respond to the issues that we raised. That's one level. [The] other level: we'll concentrate on the universities. It came . . . starts with Kerala. In Kerala, in three centres, I am going to give, and perhaps the other authors also, together, six lectures on fiscal federalism. Two days. Intensive. All students who are interested in it can come. If it proves to be interesting, maybe after the elections we'll take a tour around Indian campuses, raising the issue. Maybe the political context in India would have changed by then. Maybe we'll use that political context to push a little more, create a little more space for the states in India.

VP: That's amazing. If you are going to spend some time in the next few months . . . read this book. If you are lucky enough to come for one of these seminars you must make the attempt. But more than anything keep an eye out on the expanding of the question of the fiscal space because this is not a subject only for economists, this is a subject for all human beings. You can't do things if you can't finance them. So read the book, go to the seminar and have this discussion and debate with your friends. Thanks a lot.