This story is part of
Coronavirus lockdown and the state of State finances

Coronavirus | Kerala scrambles for funds as Centre tightens purse strings

An intransigent Centre, refusing to release GST dues and hike the borrowing limit, has squeezed the State’s revenue options

May 03, 2020 05:01 pm | Updated December 03, 2021 06:22 am IST - THIRUVANANTHAPURAM

A man sells face masks by a roadside in Kochi, Kerala on May 2, 2020.

A man sells face masks by a roadside in Kochi, Kerala on May 2, 2020.

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.

Also read | Coronavirus: Why has Kerala sought a relaxation of Fiscal Responsibility and Budget Management rules?

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.

Down to a trickle

A comparison of receipts in April 2019 and April 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 ₹2.70 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.

Also read: Comment | The State has managed the crisis by building on legacies of egalitarianism, social rights and public trust

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 CODI-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 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.

Top News Today

Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in


Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.