'The Constitution has to change ... states need more freedom'

'Though federal, the Constitution is unitary in nature. All matters relating to revenue are centralised. It is necessary that matters related to finance have to be decentralised.'

'States need more freedom in designing schemes with their interest in mind. There has to be a Constitutional amendment to give more powers to the states. A special session of Parliament should amend the Constitution, especially the 7th Schedule,' Kerala Finance Minister K M Mani tells Rediff.com's Shobha Warrier.

Karingozhakkal Mani Mani, Kerala's finance minister and founder-leader of the Kerala Congress (Mani group), is the longest-serving member of the Kerala assembly.

Entering the assembly from the Palai seat ever since its inception in 1965, Mani has presented a record 12 state budgets.

His son, Jose K Mani, is the sitting MP from Kottayam.

With Jose being re-nominated as candidate for the Lok Sabha election in the state on April 10, Mani, bottom, left, is busy campaigning for his son.

Rediff.com's Shobha Warrier caught up with him during one such campaign.

You are from the socialist era but today, we have an open market economy. Are you happy with the change?

What we stand for is a mix of capitalism and socialism, and our supporters are small and medium cultivators. I strongly feel they form the basic structure of our society.

The open market economy has its own merits and demerits. One demerit is the fluctuating market and price rise, and this has affected farmers and cultivators very badly.

I know when I say that their interests have to be protected by all means, I may sound like a socialist.

Has it been difficult for you to accept the liberalised economy?

We have not accepted liberalisation as such. We are of the opinion that some sectors like agriculture need to be protected.

It is necessary to protect small, medium and marginal farmers.

Though the government is trying to help the farmers through various schemes, I feel it is not enough.

More attention has to be paid to the agricultural sector.

Just look at the stagnation in agricultural growth which is a cause for worry for all.

Only if there is more growth in the sector, which is the backbone of any country, can we provide more growth in the rural areas.

A criticism of liberalisation is that, the much talked about trickling down has not occurred and the rich have become richer and the poor, poorer...

What you said is true. The gulf between the haves and the have-nots has widened.

Only through socialist measures and social welfare schemes, can you bring the poor up.

It is the responsibility of those who have benefited, to help those at the bottom.

You work for the cultivators. Are you in favour of FDI in retail?

I am not against FDI in retail as much.

I feel there is nothing wrong in having FDI in retail, but it should not be unrestricted.

It is the responsibility of the government to protect India's small retailers.

That is why I said, FDI in retail has to be restricted.

With the aspirations of people going up and them feeling more and more dissatisfied, do you think they have become more demanding these days?

Yes, the public has become more aware and with awareness, they have become more demanding.

They are more conscious of what they want and what they can get.

In Kerala's case, people are literate, educated and aware of their rights.

Does it put pressure on politicians?

Now, politicians know very well that the electorate is educated and you can't fool them.

People ask questions and they want politicians to show results.

This has made politicians accountable to people. I have started noticing this in the last few years.

Kerala has always been a Money Order economy (relying on large remittances from Gulf-based Malayalees). Can a state sustain itself on 'money orders' alone? Will there be a change in this situation?

There has to be a change, as this is not sustainable.

Kerala is one state that is growing at 9 per cent and our aim is to reach double digits, which we are sure to achieve soon.

Kerala has also been topping in per capita consumption expenditure for the past few years.

Our growth is much more than the national average.

The 13th Finance Commission identified West Bengal, Kerala and Punjab as revenue deficit states in 2007 and gave them a slightly relaxed fiscal consolidation roadmap. Do you think debt-ridden states should be supported through the Finance Commission?

Yes, as per the analysis of the Finance Commission, Kerala, West Bengal and Punjab are debt-stressed states.

The commission also recommended that Rs 3,000 crore (Rs 30 billion) debt in the form of loans should be written off to help these states. But this has not happened yet.

We have asked the Centre to do it immediately.

Recently, West Bengal asked for a moratorium on its debts. Is not writing off debt a bad precedent? Is it not punishing those states that performed better? Should there not be incentives for states that perform better?

It is not a good argument.

Won't we help the poor? When you help the poor, would the better off ask, 'Are we fools to have made money'?

Those states that are in debt surely need help.

Kerala is at the number one position in many aspects like literacy, child mortality and male-female ratio. Why then is it a debt-stressed state?

That is because we do not have enough revenue. Only if the state's economy grew and made more revenue, will it be able to come out of this situation.

Which elements of Kerala's economy have the potential to grow?

We only have the service sector performing well.

We should have had the primary and secondary sectors growing first, but we see only the service sector growing.

Though I had brought in many schemes like high-tech villages in my last budget for the agricultural sector, we have not seen it growing the way we expected.

It is necessary to modernise agriculture. Otherwise, it won't be able to compete in the market. Then, the manufacturing sector has to grow.

Even today, industrialists are scared to come and start a business in Kerala...

That was how it was before.

Industrialists were scared of red flags and frequent strikes.

The image of Kerala was that of an industry unfriendly state. It is no longer so.

Even the labour class is aware that they need industries to live a better life, and they are very hard working.

Today, Kerala is investment friendly.

Let industrialists come to Kerala, we will provide all necessary help.

But they are scared to come...

I don't know why they are scared.

We have been welcoming investment in tourism, education and many such sectors.

Opportunities are plenty in the tourism sector, and it has not been exploited at all.

Soon after Independence, it was necessary to have five year plans for laying the foundation of a nation, but today in a globalised world, when the economic situation is changing rapidly, has the idea of a five-year plan become redundant?

It is true that the world is one village and one market. But there is nothing wrong in having long term planning.

Planning cannot be rigid, as we need both long term and short term planning.

Five-year plans happened as a government's tenure lasts that duration. Other than that, there is no sanctity in the number.

Do you think the Centre must be more pro-active in involving states in the financial sector-related policy matters? As of now, Centre dominates in such policy matters.

It is absolutely essential that Centre-State relations, especially in finance should change. It is one of the declared policies of the Kerala government.

The Constitution has to change in this regard.

Though federal, the Constitution is unitary in nature.

All matters relating to revenue are centralised.

It is necessary that matters related to finance have to be decentralised.

States should have more powers and rights in revenue generation.

This has not happened till now.

Should the Centre be judging and deciding the needs of states and allocating budgets accordingly, when the needs and priorities of each state are different?

You are right. There are many centrally-sponsored schemes, and all of them look alike.

They may not be suitable for all states.

When many states started protesting, the number of such centrally-sponsored schemes has reduced considerably.

That is what we have been demanding for many years.

I would say, states need more freedom in designing schemes with their interest in mind.

There has to be a Constitutional amendment to give more powers to the states.

A special session of Parliament should meet to amend the Constitution, especially the 7th Schedule (external link). Then, they should make adequate changes in Centre-state relations.

How do Centre-State relations in finance-sharing change when different parties rule the state and the Centre? How can states overcome this?

Strains in Centre-State relations while sharing revenue occur because there is an imbalance in the Constitution.

If amended properly, there will not be any friction and who rules the Centre and who rules the state becomes immaterial.

There will be more cooperation between the states and the Centre.

It is high time we made changes in the Constitution so that states will have more powers and opportunities to make revenue.

Image: Top, a Kathakali performance in Kochi. Photograph: Getty Images.