After Spending Spree, Kerala Government Says It Is Facing ‘Financial Crisis’ Due To Covid-19 Lockdown 

During the weekend, Kerala Finance Minister Thomas Isaac said that the Left Democratic Front (LDF) government in the state was reeling under a financial crisis in view of the nation-wide lockdown to tackle the spread of novel Coronavirus (Covid-19).

Given the poor financial situation of the state government, the statement is not surprising, especially since the Pinarayi Vijayan government has been on a spending-spree since it came to power in May 2016.

Isaac told the media that the state has been able to raise only Rs 250 crore this month and it expects to totally mop up Rs 2,000 crore including payments from the Centre.

The problem for Kerala is that salaries alone account for Rs 2,500 crore of the exchequer’s outgo.

Interestingly, the government led by the Communist Party of India-Marxist (CPM) attempted to raise Rs 2,500 crore by asking the government employees to contribute their one-month salary.

The state government even proposed to collect the contribution in six equal instalments — five days salary each month for six months.

But it has run into problems with the employee associations owing allegiance to the Opposition United Democratic Front (UDF), led by the Congress.

The LDF government came up with the proposal of six instalments after its plea for donation during floods in 2018 was sternly opposed by various government staff associations.

Compounding the Pinarayi Vijayan government’s plans are that it has been able to raise only Rs 168.9 crore under the Chief Minister Covid-19 Relief Fund.

As against this, Pinarayi Vijayan’s LDF government has spent Rs 350 crore, which was given to the Civil Supplies Department to buy food kits.

On 27 March, the CPM-led government converted the Chief Minister’s Flood Relief Fund into Covid-19 Relief Fund.

Of the nearly Rs 4,800 crore received by the Flood Relief Fund, the state government had been left with only around Rs 1,700 crore. This amount is reported to have been allocated for welfare measures during the current lockdown period.

For April, the CPM government could resort to getting ways and means advances that the Reserve Bank of India provides to tide over a temporary mismatch in states’ cash flow.

After that, the treasury faces the danger of becoming empty, according to Isaac.

Chief Minister Vijayan says Kerala would need an overall financial package besides a special one to rehabilitate those who are returning from abroad especially Gulf countries.

He told the media that the state had raised the issue with Prime Minister Narendra Modi and would raise it again during the video conference with the Chief Ministers.

In December last year, the UDF issued a white paper on the financial situation of the state and charged the LDF with mismanagement.

Opposition leader Ramesh Chennithala, presenting the white paper before the media, alleged that the financial crisis was due to the Pinarayi Vijayan government indulging in corruption and being spendthrift.

The white paper said Kerala’s public debt has increased to Rs 2.5 lakh crore from Rs 1.5 lakh crore in 2016 with the annual plan fund being cut by 30 per cent.

The Vijayan government targeted a 30 per cent increase in tax collection but could achieve only a 12 per cent rise.

Another Congress leader and member of the Legislative Assembly, V D Satheesan, alleged that the state government had failed to create any assets.

The UDF white paper said that between July and September 2019, as many as 1,050 bills valued at Rs 1,133.46 crore were not cleared.

The white paper pointed out at the Comptroller and Auditor General of India’s findings that the Kerala government masked its financial crisis and was unable to rein in expenditure.

In November 2019, a controversy broke out in Kerala over the diversion of World Bank loan for meeting general expenses.

Kerala’s problem is that at least 52 per cent of its committed expenses of Rs 1.27 lakh crore goes towards salaries, pensions and interests payments.

Kerala’s fiscal deficit was estimated at Rs 26,291 crore in 2019-20 fiscal.