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COVID-19 pandemic | Why Kerala’s Rs 20,000 crore relief package is not financial wizardry

With its third consecutive state-wide crisis, Kerala is at its wits end. There is a limit to what the state can do, and we will be in a serious crisis if the Centre does not help, writes Kerala Finance Minister Thomas Isaac.

March 25, 2020 / 08:39 AM IST
Representative image

Representative image

Thomas Isaac

In recent days, especially since the Government of Kerala announced a Rs 20,000 crore financial package to revive the state’s economy, I’ve been hearing questions about how the state can bring out such a package, is it implementable, can similar models be replicated, and, what role can the Centre play in this?

There is no financial window dressing or skulduggery here, but a bit of innovation — the type we’re forced to take when push comes to shove. At the outset I must also say that much of this depends on whether or not the Bharatiya Janata Party (BJP)-led Centre adopts a liberal fiscal view towards an ongoing health crisis and the economic impact it entails.

The novel coronavirus COVID-19 has created havoc with Kerala’s economy at a time when the state is limping back to normalcy after two consecutive state-wide floods in 2018 and 2019. A few months before the 2018 flood, there was first Okhi cyclone and then the Nipah virus outbreak in parts of the state. Despite these setbacks, the economy proved to be resilient because remittances from Non-Resident Keralites in Gulf (West Asia) did not decline. This year I fear that is not happening, and the state’s revenues have sharply gone down.

Frontloading And Its Costs


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The motivation for such a package now is because the Pinarayi Vijayan-led Left government felt it is very important to make an effort to put money into the hands of the people. At this juncture when employment and income of common people are spiralling down, we decided to frontload our annual borrowing. For the next financial year, we are allowed an annual borrowing of about Rs 27,000 crore; of this, we’ll frontload some Rs 10-12,000 crore in the first quarter. Through the Kudumbasree network we are expanding our microfinance window by another Rs 2,000 crore. We are also planning to implement employment guarantee programme worth nearly Rs 3,000 crore in the first two months. All these have enabled the Rs 20,000 crore package — whose substantial portion is paying a whole lot of arrears, in old age pensions, scholarships, subsidies. Some advance payments will also be made.

For the package some existing schemes have been tweaked. Initially the target was to open 1,000 shops by August to provide good, cooked meals for Rs 20 throughout the state. This was revised to be achieved by April first week. However, with lockdowns and social distancing kicking in, we have re-designed it. Now, instead of people coming and crowding at these shops, upon a phone call the meal will be delivered at the doorstep. The first such network has already been inaugurated in Alappuzha.

This frontloading, of course, is going to put the state in a lot of difficulty in the later months — but it’s a reality we must be prepared for. With a closure of the state government’s revenue and excise streams, such as Bevcos, lotteries and other businesses, the state could be facing a fiscal crisis by the mid-2021. Also, due to various relief measures adopted, the state’s revenue growth is not just going to decelerate, it will be in the negative for 2020-21.

With its third consecutive state-wide crisis, Kerala is at its wits end. There is a limit to what the state can do, and we will be in a serious crisis if the Centre does not help.

The Centre Must Chip In

The Government of India must immediately decide to raise the states’ fiscal deficit ceiling from the current 3 percent to 4 percent. There is no escape from the current pandemic and the economic crisis it presents — the whole world is facing it. Now is not the time for the ruling party to cling on to its ideological positions. There is no choice other than to allow for a temporary raise of fiscal deficit for the states and Centre.

The Centre should think of a quick and seamless way to put money in the hands of the people. A simple way would be to double the old age/widow pension from the current Rs 300 to Rs 600. The Centre should expand its reach from BPL families to everyone. It will be a universal pension scheme, and the advantage here is that the infrastructure for its distribution exists. At present Kerala pays about Rs 1,300 per month to about 5.5 million people—of this, the Centre’s contribution is Rs 300 for 0.65 million people.

The Centre must make food grains available to the states. Our godowns are flooded with grains and they are at a loss to know how to dispose of these grains. States like Kerala are in need of these grains. Let people be provided with food grains free of cost so that there is no starvation because of the lack of employment opportunities during this lockdown. The expenditure for the procurement has already been incurred and therefore central government does not have to make any new pay out.

The Centre must double the allocation for the MGNREGS and increase the number of working days from 100 to 150. Wages must be increased by at least Rs 50. On a temporary basis this can be expanded to the urban areas as well.

The Centre can raise the payment for the Ayushman Bharat Yojana. At present, the Centre foots just 20 percent of the bill the state incurs. Now we are facing a health crisis, so let the Centre and state share it on a 50:50 basis. The Centre can also increase its allocation for the national health mission, which increased by only 8 percent last year. The Centre can double that amount and transfer it to the state.

It will not be an easy task for the Centre as well. This is because the total actual money in circulation is drastically going down as people are not spending. Our economy is shrinking — be sure India’s GDP growth in the next quarter is going to be negative. In such a situation we need to spend money. The Centre can borrow from the RBI or monetise its debt. The BJP government must shed its neo-liberal obsession towards the fiscal deficit, especially when we are in such a crisis.

Kerala’s Advantage

The success of the Rs 20,000-crore package does not entirely lie in the volume of aid that is pumped in. In Kerala, the co-operative system, the Kudumbasree and local self-governments are three strong pillars of community participation that forms the artery system through which the relief package will flow. The co-operative system is a very robust one, and accounts for one-third of the total deposits in the co-operative sector in India. Now the state government has asked these co-operatives to disburse pensions to 5,500,000 people by the month-end and the state will pay when it borrows in April. This will ensure that there is no disruption in payments.

We have the Kudumbasree — the most comprehensive neighbourhood women’s network in India—that cuts across all barriers of caste, religion, etc. The thousands of food stalls we intend to open will be possible because of these neighbourhood women’s network.

The role of local self-governments is not just token. We overcame much of the flood crisis because we empowered the local self-governments. We are raising a 350,000-strong social volunteer force at the village level, which will be trained and be ready to help the administration at the time of a crisis.

All this shows that it’s not just finance. Financial wizardry has its limits.

Prepare For New Realities

If there is a lesson to be learned from COVID-19, it is the importance of a robust healthcare system. We should rethink the insurance model of healthcare. Signs are that even US President Donald Trump could look to revisit ‘Obamacare’.

In India, we must revise the present model to one which has a robust public health system — and for this we need to invest good money. It should not be a system which is based on private insurance. We need not do away with the private sector; the private will be there in the tertiary level, but primary healthcare is the duty of the government. This crisis points to the need for a public health system revamp.

The world is entering into a new phase, a phase which we’ve been talking about for a while now — the epoch of climate change. Frequent and severe natural disasters and zootonic diseases point to an imbalance in the ecosystem. This is an imbalance we cannot ignore anymore. The world needs to take ecological changes seriously, and have a larger disaster management programmes. Kerala has recognised this and is preparing for it — India must also do the same.

(As told to Viju Cherian)

Thomas Isaac is finance minister of Kerala. Views are personal
Moneycontrol Contributor

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