New Delhi: Economists and state governments are asking for more spending at the state level after the Union government on Sunday unveiled a Rs31,900 crore fiscal package to stimulate economic growth. They argue that states are capable of spending money more efficiently. Kerala finance minister T.M. Thomas Isaac is leading the calls. Mint caught up with Isaac on the sidelines of a conference organized by the Centre for Budget and Governance Accountability. Edited excerpts:
Do you think states should also provide fiscal stimulus like the Union government to tide over the economic downturn?
How do I spend more? I can’t print notes! In fact, what is going to happen is (that) because of the downturn, my revenue is going to sharply go down.
Raising voice: Isaac says tax regime okay but differences persist
The Union government devolution is going to go down as, due to the tax cuts, they are also going to lose revenue. So our revenues are going down, but I can’t borrow, I can’t have deficit financing. So, how do I spend more?
So, you agree with Planning Commission member Abhijit Sen that FRBM (fiscal responsibility and budget management) restrictions on state governments should be lifted for the time being?
Hundred and one per cent.
Are you going to approach the Union government for this?
I wrote a letter a month back asking P. Chidambaram (then finance minister) to raise my borrowing limits. He has not replied.
Will the fiscal stimulus by the Union government fall flat if state goverments do not match it with additional spending?
The Centre is more driven by very narrow political interest. They don’t want the states to spend more as general election is approaching.
On the goods and services tax (GST) front, what is the progress now?
They (Centre) are unilaterally going ahead with the uniform sales tax on ATF (aviation turbine fuel). We may refuse to cooperate.
But Chidambaram, before leaving the finance ministry portfolio, said that an agreement has been reached between the states and the Centre on GST.
That is a conditional agreement. That states should be consulted on ATF. They (Centre) are now preparing legislation to make ATF declared goods. (The status of declared goods would lead to a uniform sales tax on ATF across states.)
But you are okay with the dual tax regime?
That’s fine. But there are differences on the tax rates (between states and the Centre). We are saying 12% for the state governments and 8% for the Union government. The Centre is saying just the opposite.
Do you think the 2010 deadline for GST could be met?