Now that the Centre has increased the borrowing limit of states from 3 to 5 per cent of the Gross State Domestic Product, allowing Kerala to borrow an additional Rs 18,087 crore from the open market, the question is whether the LDF government would continue to withhold a portion of the salaries of government employees and teachers.
By temporarily setting aside one month's salary of employees, a phased reduction done in five months, the government hopes to mobilise around Rs 2500 crore for the time being. Now, when nearly eight times this money could be secured additionally by the government, what is the point in squeezing the purchasing power of government employees for a mere Rs 2500 crore.
And when increased spending is what the government is looking for to jolt the economy from its slumber, salary cuts that can induce demand freeze will also look economically unsound.
Already, Kerala had the power to borrow Rs 21,130 crore this fiscal. With the increase in borrowing limit, Kerala can now borrow a total of Rs 45,217 crore. By now, in the one-and-a-half months of this fiscal, Kerala has borrowed Rs 8,930 crore.
Additional funds a pittance
Finance minister T M Thomas Isaac has welcomed the higher borrowing ceiling but said in a Facebook post that it has come with lot of conditionalities. Meaning, there will be hurdles for the additional money to come in.
A top source in the finance department said a study conducted by Gulati Institute of Finance and Taxation had estimated that there would be a revenue shortfall to the tune of Rs 35,455 crore. “The additional amount the state can now secure is just half this anticipated loss of revenue. We need to hold on to even the scraps that we can get hold of,” the senior official said, a clear hint that at the moment there is no plan to withdraw the temporary salary cut.
Salary cut is no spending cut
Economists Onmanorama talked to, all of them ideologically opposed to Thomas Isaac, were also of the opinion that there was no need to spare government employees.
Noted tax expert and economist Jose Sebastian said a government employee's marginal propensity to consume would not fall simply because there was a minor cut in salary. “Some 20 per cent cut in salary, that too for just five months, will not reflect as low spending. They will anyway spend to keep up the lifestyle they were used to,” Jose Sebastian said.
“Even if the reduced salary is restored, an especially higher level of spending cannot be expected either. At the most, they will put off the purchase of costly durables like a refrigerator or washing machine or an AC,” he added.
Spare the employee, spoil the economy
Economist Mary George, too, said the rolling back of the salary cut would have no effect on the market. “Anything above Rs 20,000 a month is not a bad amount. Not all the money they get a month goes into spending. It is only the income of the marginalised that goes completely into spending,” she said.
Further, Mary George said the conditions imposed on the states by the Centre to secure the additional borrowings would necessitate additional investment by the government. “The conditions related to ration card portability, ease of doing business and the reduction of transmission losses in the power sector would require the state government to invest more to achieve the targets. So, it is not as if the government could use the extra money as it pleases,” Mary George said.
She also termed the government employees “privileged class”. “In no other state in the country 55 per cent of the revenue expenditure is spend on salaries alone,” she said.
Government employees a cushioned lot
According to Prof B A Prakash, the chairman of Kerala Public Expenditure Review Committee during the UDF tenure, Kerala economy was in such a precarious situation that it was not in a position to forego even the little that comes its way. “The state's revenue has fallen so abysmally low that it is only 10 per cent of what it was last April,” Prof Prakash said.
Further, he said the government employees were better placed. “Being government servants, they have a sound economic base. Unlike others, it will be easy for them to take a loan,” he said. The casual labourers and the self-employed, on the other hand, are a decimated lot. “There is nothing wrong in taking a bit out of the pockets of government employees to support these people who are facing the worst crisis ever,” Prof Prakash said.
