Kerala to cut spending to address coronavirus crisis: Thomas Isaac

The Kerala government is looking at ways to cut its expenditure significantly in order to deal with the current financial situation of the state, which may see the worst recession since its formation in 1956, said state Finance Minister T M Thomas Isaac.

According to a report on economic and fiscal shock of Covid-19 on Kerala by Gulati Institute of Finance and Taxation (GIFT)— an autonomous institution of the state government — the state’s revenue deficit is expected to rise up to Rs 48,657 crore and fiscal deficit to up to Rs 62,751 crore in fiscal year 2020-21.

The state government has set up a committee headed by Sunil Mani, director of the Centre For Development Studies, to assess the fiscal situation, and has sought a report in a month’s time.
 

“According to a study by GIFT, Kerala’s economy will shrink by 10.13% even if the normalcy is restored within three months after the lockdown is lifted. If recovery takes six months, GSDP (gross state domestic product) growth will decline by -13.56%. This will be the sharpest recession after the formation of the state in 1956,” Isaac wrote on Twitter.

The committee has been mandated to look into the existing methods of filling vacancies in government departments, how the services are offered, working arrangement functions, appointment and promotion methods, expenditure that can be avoided if online, e-office services are implemented, how to control the other expenditures in government departments, possibilities of combining various commissions, boards and welfare board offices, and reducing rent on government offices by rationalising space, among others.

The order related to expenditure control is expected to be announced in June, said the minister on his social media page.

“Even if you calculate that things will return to normal after the lockdown period of 47 days from April 1, the state will have a revenue loss of Rs 79,300 crore. However, the state’s own revenue will grow 2.06 per cent by the end of the year. But if you look at another calculation, considering things will return to normal three months from the lockdown, the revenue loss would be around Rs 1,35,523 crore, which means the fiscal growth will be a negative 5.16 per cent,” he said.

According to a third calculation, if the state will take six months to return to normal after the lockdown, the total revenue loss would be around Rs 1,65,254 crore and the fiscal growth will be a negative 8.56 per cent. If the inflation is at 5 per cent, the economic slowdown will be more severe.

If the economy declines by 10.13 per cent, the state will have a revenue decline of Rs 33,455 crore in its budget. The state budget estimates Rs 1,14,635 crore as revenue, but it will come down to Rs 81,180 crore.

According to a calculation, the revenue deficit is expected to go up from 1.55 per cent to 4.18 per cent, while fiscal deficit is expected to rise to 5.95 per cent from 3 per cent. Even if the Central government allows the state’s demand to borrow 2 per cent more, it could only borrow 5 per cent.

“These calculations show that the state has to significantly reduce its expenditure. The final decision will be taken after the special committee submits its report,” he added.