Governor Arif Mohammed Khan signed an Ordinance to defer six days' salary of the government employees and teachers for five months to meet the expenses for the COVID fight on Thursday.

The law will authorise the government to set aside up to 25 per cent of the salary of government employees.

The Ordinance was sent to the Governor on Wednesday.

The Cabinet decided to promulgate the ordinance on Wednesday to operationalise the salary deferment, a day after the High Court stayed the government's plan.

Finance Minister Thomas Isaac said the government would repay the deferred amount back to the employees. "We are not deducting salary. We will repay them the deferred amount. An order will be issued soon," he told reporters in Thiruvananthapuram on Thursday.

The government is expecting to raise Rs 2,500 crore through this process. “We will explore different options to pay the employees back. It may be included in the salary component or in the provident fund component,” he said.

He said the amount deducted through deferment will be kept in a separate account in the treasury.

High Court's observation

The Kerala High Court on April 28 observed that the government order was not properly backed by the law. The single bench of Justice Bechu Kurian Thomas said that he could not find any basis of for such an order. “However much I tried to bring the impugned order (the deferment order on April 23) within some framework of the law, I could not find any basis for such an order in any of the statutes. Neither in the Epidemic Diseases Act as amended by 2020 Ordinance, or in the Disaster Management Act could I seek solace to justify issuance of the order,” he observed.

The Judge agreed with the petitioners that salary was 'property' as defined in Article 300A of the Constitution, which says that no person should be deprived of his property.

The Court also pointed out that from the April 23 order it was not clear how the money taken out of the salaries was to be utilised.

Coffers running dry

Finance Department sources said with not much revenue to speak of the government had no choice but to defer salaries. The state's own tax revenue - including GST, sales tax on petrol, and revenue from excise and lottery - had dwindled to Rs 250 crore. Even a weak month would have generated at least Rs 3000 crore.

The monthly Goods and Services Tax revenue, which on an average month would be Rs 1800 crore, has now shrunk to Rs 180 crore. The sales tax from petrol, which had consistently been over Rs 600 crore every month, has all but dried up. What the government got this time was a pittance, Rs 26 crore.

Already, before even the first month of the 2020-21 fiscal is over, Kerala has borrowed Rs 6000 crore. Normally, this happens over a period of four or five months. With budgetary allocations to the Health and Civil Supplies departments scaled up, the government is all set to go for a second round of open market borrowing soon.