Home / News / India /  Covid-19: Kerala signs law to raise 2,500 crore by deferring govt salaries

ERNAKULAM: Kerala governor Arif Mohammad Khan on Thursday signed an ordinance--Kerala Disaster and Public Health Emergency Special Provisions Act, 2020--ushering in a law to defer up to 25% of salaries of state government employees for six months during an emergency.

The law was necessitated because of the economic fallout of the covid-19 pandemic. The state expects to raise 2,500 crore through this move.

The move underlines the financial constraints Kerala and other states face in their fight against the disease.

With the lockdown in place, since 25 March, Kerala, like other states, has seen its revenue shrink. It collected 2,000 crore in revenues in April, while it needs 2,500 crore to pay salaries of government employees, according to state finance minister Thomas Isaac.

The ordinance comes days after the Kerala high court stayed an order of the state government on cutting salaries of its employees, observing that the move lacked legal backing. On Tuesday, Kerala high court had ruled that financial difficulty cannot be a ground for deferring or cutting salaries of government employees.

Following the high court ruling, the Kerala state cabinet on Wednesday decided to bring out an executive order to defer wages up to 25% for six months despite opposition from the Congress and the Bharatiya Janata Party.

An amount matching the deferred sum will be submitted to the chief minister's relief fund, and will be restored to employees when the financial distress from covid-19 eases, Isaac has said.

"The government is not happy to do this, let me be very open," said Isaac. "It should have been done under a bilateral agreement with the workers and the government. Several people have told us that they will not have money for sustenance if we do this. We will consider everyone's problems before and the final payment will be made based on that. We will try to reduce problems for everyone as much as we can," he added.

Despite the ordinance, the government will end up having to borrow money, Isaac had said on Wednesday. "Salaries will be delayed this month until the finalisation of the ordinance. In reality, we can only give salaries after borrowing 1,000 crore (from the Reserve Bank of India by way of Statutory Liquidity Ratio or SLR bonds)," he said. "The next bidding (for the SLR bonds) is on 5 May. The interest rate is at 9%, so if we take 5000-6000 crore (like Kerala did in early-April), we will have to pay high interest. The interest rates may still go higher."

Kerala has a relatively high ratio of one government employee for every 100 people in its 33-million population. Nearly 5,00,000 government employees are paid almost 42,000 crore every year in Kerala, accounting for 50% of total revenue of about 85000 crore.

Many secretariat officials have already donated their one-month salary under a 'Salary Challenge' programme floated by chief minister Pinarayi Vijayan to help with covid-19 relief works.

Most of Kerala's revenues come from sectors such as travel, tourism, alcohol and from remittances - all hit because of the pandemic-induced lockdown. The Centre has so far injected 1,276 crore as revenue deficit grant, apart from existing central projects. The state expects only 150 crore as returns from Goods and Services Tax, and 250 crore in fuel cess in April.

Vijayan on Monday pegged the state's losses at 80,000 crore in the first quarter of the current fiscal. Kerala has formed an expert panel to put together a rehabilitation package for the economy.

The state also expects a significant contraction in remittances and probable destruction from floods in the August-September monsoon season.

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