Package of new worries

Kerala’s measured approach to the pandemic and lockdown has yielded results. But it still has to grapple with their huge economic impact on its economy, which it feels the Centre’s special financial relief package does little to alleviate.

Indian citizens evacuated from the Maldives arriving at Cochin Port in Kochi on May 10.

ALTHOUGH Kerala’s handling of the coronavirus crisis continues to receive all-round praise, the State is on edge as it enters a tricky phase in its containment efforts, with the gradual easing of lockdown restrictions going hand in hand with the arrival of a large number of Keralites from COVID-19 hotspots abroad and from other States. There is another issue that nags the State in equal measure. This is the uncertain but huge impact of the pandemic and the lockdown on the local economy, which is yet to fully recover from a series of natural calamities: the Okhi cyclone in 2017 and the devastating floods in 2018 and 2019.

The State had held itself up bravely against these back-to-back calamities, but recovery was understandably still an ongoing process even as reports of the possibility of truant rains were once again clouding the horizon. Yet another worrying monsoon season is already round the corner.

According to State Finance Minister Thomas Isaac, Kerala will experience a revenue loss of nearly Rs.35,000 crore this year. As Frontline had reported earlier, in the State Planning Board’s assessment, Kerala suffered a loss of Rs.29,000 crore as a result of the nationwide lockdown from March 24 to May 3.

The Gulati Institute of Finance and Taxation (GIFT), an autonomous institution under the State government, was tasked with a study on the economic and fiscal impact of COVID-19 on Kerala. Its report calculated the likely fall in the State’s income on the basis of three assumptions. If it is assumed that things will get back to normal after 47 days of lockdown from April 1, the State will experience a revenue loss of Rs.79,300 crore; if the economy gets back to normalcy in three months, the revenue loss will be Rs.1,35,523 crore; but if it takes six months for things to get back to normal, a more likely prospect, the loss could be Rs.1,65,254 crore.

Despite the severe financial crunch, Kerala was the first State to announce an immediate livelihood package of Rs.20,000 crore and to ensure, among other things, provision of free food and accommodation, free rations and community kitchens for all needy people, including thousands of “guest workers”; release of all welfare pensions, including arrears and disbursal of interest-free loans to members of the State’s large Kudumbashree network, besides finding additional resources for its remarkable pandemic control measures.

By the beginning of May, the State was bitterly complaining that it was doing all this despite “zero income” and in the face of the Centre’s continuing apathy in announcing a relief package or other much needed assistance to States.

Response to the Centre’s package

Chief Minister Pinarayi Vijayan said on May 15 that Kerala’s revenue and fiscal deficits would go up dramatically, with health and social sector expenditure rising exponentially. Just before that, the State government issued an ordinance to defer a portion of the salary of its employees equivalent to six days for each month from April 2020 to August 2020. The government also indicated that more stringent cost-cutting measures might have to follow. It was, therefore, with some relief but a lot of caution that Kerala received the Centre’s May 12 announcement of a Rs.20 lakh crore special financial package.

The Chief Minister’s immediate reaction was this: “The Centre has announced a package that helps the corporates and the private sector, whereas what Kerala needed was a package that strengthened the public health system. Anyway, Kerala plans to adopt an approach that will strengthen only the public sector. Banks are reluctant to lend money to the States. Kerala had to pay an interest of 9 per cent when it took a loan of Rs.6,000 crore. We are against the Central government introducing conditions while at last agreeing to the long-pending demand of the States to increase the borrowing limit to 5 per cent. Given the fact that the MSME [micro, small and medium enterprises] sector has played a major role in Kerala’s growth in the recent past, the State will ensure that the Centre’s announcement regarding the MSME sector is utilised in the best possible way in Kerala. [Kerala announced a special revival package of Rs.3,434 crore for the MSME sector on May 14.] Kerala also welcomes the Rs.40,000 crore package announced by the Central government in addition to the Rs.61,000 crore Central budgetary allocation for the MGNREGA [Mahatma Gandhi National Rural Employment Guarantee Act] programme.”

While pointing out that Kerala expected a huge revenue loss of nearly Rs.35,000 crore this year, Isaac said that even if the State got the full benefit of the increase in borrowing limit to 5 per cent of the State’s income, Kerala would only get an additional loan of Rs.18,087 crore. “It means that we can only make up for half the estimated revenue loss through this,” he said.

Kerala is, therefore, demanding that the Central government give the entire goods and services tax compensation due to the State and that it give the State assistance to raise its public health expenditure substantially.

Kerala is against the borrowings being tied to conditions, the Finance Minister said. “The borrowed amount is meant to be repaid by the State with interest. Therefore, it is only fair that the States should be allowed to spend the amount based on their own priorities. The conditions must be removed. Or there should be a discussion on the conditions that are being imposed. Kerala does not have any objection to the suggestions for one ration card for the nation or that ease of doing business should be improved. But in the name of ease of doing business, Kerala cannot take up the measures that the Centre has proposed now, which it feels totally destroys the public sector. The Centre is trying to make use of this crisis period as an opportunity to introduce such reforms. For instance, Kerala has been against the power sector reforms proposed by the Centre. But agreeing to the Centre’s policy on this is a condition for getting the benefit of the raised borrowing limit. India is governed by people with different political outlooks. The Centre should, therefore, not put forward such things. Kerala will register its formal objection soon,” he said.

Unlike other States, Kerala has already utilised a large share of its borrowing limit of 3.5 per cent of the State revenue because it wanted to ensure that the money reached needy pockets immediately after the lockdown. Out of a total of Rs.13,000 crore that it was eligible to borrow until the end of the year, Kerala has already borrowed Rs.9,000 crore. “But banks do not like to give loans during a financial crisis, and the State had to pay an interest of 9 per cent on Rs.6,000 crore it borrowed in the end. The Centre should instead allow the States to borrow directly from the RBI [Reserve Bank of India]. Only then can we ensure that the interest will be a just and fair one,” Isaac said.

The Finance Minister also pointed out that now when States were being allowed to take up to 5 per cent of their annual revenue as loans, the revenue of all governments, including the Centre, was coming down. Therefore, the State revenue as recorded in the Central Budget should be taken as the basis to decide the amount that could be borrowed. Isaac said even under these difficult times, Kerala was thinking of giving a second instalment of benefits/assistance to people to tide them over the lockdown crisis. So, revenue expenditure was only going to increase.

According to the GIFT study, Kerala’s economy will shrink by 10.13 per cent even if normalcy is restored within three months of the lockdown. If recovery takes six months, gross State domestic product growth will decline by −13.56 per cent. “This will be the sharpest recession after the formation of the State in 1956, and the State will have to cut down on expenditure,” Isaac said.

The government has constituted an expert committee headed by former Chief Secretary K.A. Abraham to conduct a study on the impact of COVID-l9 and the lockdown in the context of the unprecedented slowdown in economic activities; the extreme loss or reduction in employment, income and output; the steep fall in demand for goods and services; and the severe shortfall in the State’s revenue. Another committee, headed by Sunil Mani, Director of the Centre for Development Studies, Thiruvananthapuram, is looking into possible measures to reduce costs in government.

Worrying signs

Meanwhile, just as Kerala was heaving a sigh of relief because the number of positive COVID-19 cases had come down to single digits, with even Kasargod, the district that had the largest number of cases being totally free of COVID-19 patients, warning bells have begun to ring once again.

The first stream of Keralites from other States began to arrive from May 4 through six designated checkposts, and the “Vande Bharat Mission” flights with expatriates started arriving from other countries, especially in the Gulf region, from May 7. By May 18, 55,086 people had arrived in Kerala by road, 3,467 through airports, 1,033 through the Kochi seaport (from Maldives) and 1,026 by train.

The Chief Minister openly expressed concern that the State’s successful fight against COVID-19 could all go haywire if people start arriving without following the proper procedures or without the necessary medical tests or documents and if there was laxity in surveillance measures and in following the so-far effective norms of physical distancing and personal hygiene. From May 7 itself came the warning once again from the government about the rise in the number of positive cases, a majority of them among the returnees and their contacts.

The number of active cases in Kerala had risen to 130 by May 18, when 29 more people were confirmed as positive. Of the 29 new cases, 21 were people who had come from abroad, seven had returned from other States and one person, a health worker in Kannur, contracted the disease through contact. The number of active cases in Kasargod rose to 18 from zero, and Malappuram had the largest number of active cases: 26. On that date, 67,789 people were under observation, 473 of them in hospitals and 67,316 under home isolation. On May 18 alone, 127 persons were hospitalised.

Many worrying signs also began to be reported from several parts of the State. A truck driver who returned from Koyambedu market in Chennai caused a scare when he started another cycle of infection in Wayanad district. His close relatives and police and health personnel who had come into contact with the infected people, including a resident of a tribal hamlet, were among those affected. Around 300 police personnel had to be put under observation. A bakery owner in Idukki identified as COVID-19 positive in a sentinel survey conducted as part of community surveillance, and with an unknown source of infection, was found to have come in contact with hundreds of people. And on May 18, three people who knew they were COVID-19 positive managed to catch a flight from Abu Dhabi, enter the State and leave the Thiruvananthapuram airport for home undetected despite all the State’s precautionary measures to identify and send such people straight to hospitals.

But despite such disturbing trends, the State decided to ease the general restrictions even as the national lockdown was extended to May 31. The Chief Minister said, while announcing the easing of restrictions: “We cannot live under a lockdown for a long time. We now have a clear idea about how to tackle this pandemic. The disease is spread through contacts. If we can prevent such contacts, we can check the spread of the disease. That is why those coming from hotspots outside Kerala need to be examined and put under quarantine. We need to ensure that there is no laxity in this. The government will do whatever it can. But such surveillance is the responsibility of the people themselves. Our State is moving towards such an intervention. We are sure that even when we ease the restrictions, we will be able to contain the spread through such measures. It requires total cooperation from the people. They will also have to follow guidelines regarding good hygiene and physical distancing as they have done till now. Use of masks and sanitisers and forms of greeting without body contact have become popular, but we have to ensure that they continue to be observed. It is indeed a dangerous phase, but if we handle it the right way, we will be able to overcome this crisis without any danger.”