Scramble for funds as Centre tightens purse strings

By neither releasing GST dues nor raising the borrowing limit, the Union government has squeezed Kerala’s options

04/05/2020, N.J. NAIR,THIRUVANANTHAPURAM

The health and economic crisis triggered by the COVID-19 pandemic has compounded the fiscal woes of the Kerala government, which is battling a grave resource crunch and a hostile political dispensation at the Centre.

An alarming dip in the State’s own tax revenue, coupled with a delay and cut in Central transfers, have pushed the State to the edge of a financial precipice.

A comparison of receipts in April 2019 and April 2020 reveals the intensity of the crisis. The Goods and Services Tax (GST) collection was ₹1,950.71 crore in April 2019. It dipped to ₹153.26 crore in April 2020. Land revenue has come down from ₹19.65 crore to ₹2.7 crore, State excise duty from ₹193.08 crore to ₹22.83 crore and motor vehicle tax from ₹298.42 crore to a mere ₹3.52 crore.

The Centre has not yet heeded the State’s demand for the release of GST compensation arrears of ₹5,000 crore. The demand for raising the annual borrowing limit from 3% to 5% also remains a cry in the wilderness. The same applies to the demand for enhancing the allocation for the National Health Mission to tackle the COVID-19 crisis.

The State has pointed out that supply chain breaks due to the lockdown would result in a shortage of medicines and other essentials that reach Kerala from the neighbouring States.

The government has only ₹2,000 crore in its coffers at present. Other than debt servicing and similar commitments, the recurring expenditure for disbursing salary and servicing pensions amounts to ₹3,850 crore. A tranche of ₹1,276 crore provided by the Centre as revenue deficit grant was perhaps the only major revenue inflow into the treasury this month.

The government’s decision to effect a six-day cut in the salary of employees and teachers for five months to cushion the impact of the pandemic’s impact ended in a legal tangle, with the High Court staying the decision for two months. The State government was forced to promulgate an ordinance to get legal sanction for the decision. However, the deduction would earn the exchequer only ₹500 crore a month and ₹2,500 crore in six months. Moreover, the government will have to return the amount once the crisis blows over.

Healthcare costs

Despite its exemplary efforts so far to contain the CODIV-19 pandemic with minimum loss of life, the threat is far from over. The government will have to bolster quarantine and testing facilities once the lakhs of Non-Resident Keralites and those residing in other States return after lockdown curbs are eased.

The Kerala State Electricity Board, the Kerala State Road Transport Corporation, the micro, small and medium enterprises, traditional industries and a host of other sectors are desperate for financial assistance to limp back to normalcy.

Turning to the market

The only option left before the government is open market borrowing. Out of the sanctioned limit of ₹24,500 crore for the current financial year, the State has already availed itself of ₹6,000 crore and is now gearing to up to borrow ₹1,000 crore to meet the committed expenditure for the month.

The Reserve Bank of India has, however, cautioned the State against drawing huge sums from the market at exorbitant rates. Which also means that the government would have to tread cautiously while approaching the market.

The State is now looking forward for a substantial assistance from the Centre and also a relaxation in borrowing curbs as a way forward.

It was in this context that Finance Minister T.M. Thomas Isaac took the lead in initiating consultations with Finance Ministers of non-BJP ruled States to form a pressure group to force the Centre accept the demand for more funds.

Dr. Isaac is hopeful of bringing in Telangana and other Congress-ruled States to the fold and pressing the Centre to accept demands.

Whether the Centre will yield to such demands remains to be seen. Or else, the administrative machinery may grind to a halt for want of financial fuel.