GST suffers from structural problems: Balagopal

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Kerala Finance Minister KN Balagopal, who was here recently to meet with Union Finance Minister Nirmala Sitharaman, shares with Activity area his perspective on the GST regime and the impact of FTAs. Excerpts from the interview:

In your first budget, you raised two points against the Center – the free trade agreements and the GST problems. Are you trying to open a new war front with the Center?

The agricultural sector has suffered greatly from the impact of bilateral and multilateral trade agreements on our production and domestic trade. The ASEAN Free Trade Agreement has caused suffering for Kerala’s plantation and spice sector. Poor quality products from the Far East and SAARC flooded national markets. Mixing these products with our own products has raised questions about the quality and credibility of our products in international markets. The result has been a huge decrease in the income of farmers.

The Center must stop discussions on all these anti-farmer treaties. They must revise the clauses of ASEAN and other free trade agreements. Governments in many countries are now trying to protect their farmers and industries from this uncontrolled flow of goods and services. We must also learn from the experiences of Brexit and Greece. The whole world is re-examining such agreements which gave free access to a few people who control the markets.

The Center has a duty to do so in the wake of protests by farmers across the country. They are facing distress. All these agreements that harm the interests of Indian farmers and the country’s economy should be overhauled. All three farm laws are against farmers, as are free trade agreements. They must be reviewed to protect farmers’ rights. Parliamentary ratifications must be made compulsory for all free trade agreements and treaties. Center must hold discussions with states and increase import duties to protect the interests of farmers. Currently, the Center serves the interests of these importers.

You wrote a dissenting note against the GST bill when it was discussed by a select committee of Rajya Sabha. The bill is now law. Have you changed your mind?

We opposed the GST in principle from the first bill stage. The Constitutional Assembly, especially Dr BR Ambedkar, made it clear that sales tax should stay with the states for a healthy federal system. When this bill was presented to parliament, the governments of the UPA and the NDA expressed hope that it would increase fiscal dynamism and that both producer and consumer states would benefit. They claimed that goods traffic will be fast without any barriers and consumers will benefit from the lower prices.

But none of these promises are kept. Tax evasion is rampant. There is no increase in tax revenue. Even before the pandemic, state revenues, including Kerala’s, were stagnant. Real state incomes have fallen. People also didn’t get any benefits because the prices have soared to the sky. The only beneficiaries are a few corporate houses and the Center. They have a win-win situation, but for us it’s a loss-loss situation.

In Rajya Sabha’s select committee on the bill, only three-four MPs stressed that the GST Council, in its current form, is weighed in favor of the Center and a few companies. We were a minority. But four years after the law was implemented, even states led by the BJP have started to voice their apprehensions. For example, Sikkim wanted an additional 300 crores for a specific Covid-19 management program. They came to the GST Council because they are unable to raise their own tax. A GST subcommittee sent the proposal to the Center. Basically, states will have to go to the Center for every tax decision.

The very concept of the GST runs counter to cooperative federalism. States lose revenue. One-third of state revenue lost due to GST. If this continues, the entire state apparatus of education, health and welfare will collapse. This cannot be corrected by compensation. The problem is structural. There should be democratic content and fiscal independence within the GST system. The Center should engage in democratic discussions on taxation and decentralization. But look what happens to petroleum products.

The Center unilaterally pockets a large part of the taxes. The centralization of income will not benefit the country.

What suggestion do you have to address the plight of farmers?

What we need are collectives and cooperatives of farmers who can add value to agricultural products. Farmers should get a good share of the profits made by industries by adding value.

Look at Amul. It is a cooperative and it can take on any global giant like Nestlé. Amul also gives a good percent of the sale price to farmers. We need more of these collectives and cooperatives and governments should protect them.

We have decided to promote these collectives and cooperatives under the Cooperative Initiative for Agricultural Infrastructure in Kerala (CAIK) in the revised budget for 2021-2022.

The government will help farmers in marketing and technology upgrading.

Many economists fear a scenario of great depression after this pandemic. Are we ready to handle such a crisis? What is the alternative that the parties of the left have to propose?

It’s not just about the Left. This is the basic economic practice that our country and many other countries around the world have been following for some time. The fundamental challenge is to create jobs, purchasing power and demand for our products. We have to make sure that agricultural production is not affected. To achieve this, we need to find a market for agricultural products. This can only be ensured by securing jobs for people in industries and other sectors.

To deal with the Great Depression, Franklin D Roosevelt introduced a new agreement in the United States, modeling the mechanisms of public spending within the framework of the five-year plans of the USSR. Roosevelt energized the economy by spending more on public infrastructure and agriculture. Here in India, we are not creating any jobs. More reduction in expenses means more problems. It’s like a black hole. A situation of great depression may reoccur if this contraction in public spending continues. Spending on building infrastructure and activating the economy is the only way to create jobs and get out of this situation.



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