Kerala Government does not have money to pay wages & pension; rejects Rs 5,000 Crore aid from Union Govt

The Government of Kerala, led by Chief Minister Pinarayi Vijayan, is grappling with severe financial constraints, struggling to meet even the basic obligations of paying wages and pensions to government and retired employees, respectively. In the midst of this financial crunch, the state government has turned down the central government’s offer of Rs 5,000 crore in aid, citing inadequacy. Despite the pressing need for immediate financial assistance, the state government contends that the proposed aid is insufficient.

The Union government, acknowledging Kerala’s financial crisis, had proposed a relief strategy for the state. However, the Kerala government argues that accepting such central assistance would compromise the state’s autonomy to secure loans independently. The Supreme Court, in response to the state government’s stance, has urged it to reconsider the viability of accepting the Rs 5,000 crore aid promised by the central government. A comprehensive hearing on the matter is scheduled for the upcoming Thursday.

The central government has defended its stance, attributing Kerala’s financial difficulties to the state’s policy choices. It emphasises that uniform policies apply to all states, and creating a separate financial package for a single state is impractical. This assertion was made in response to the state government’s petition before the Supreme Court seeking an increase in the loan limit.

Allegations have surfaced that the Kerala government is adopting a fluctuating position regarding central aid. While Union Finance Minister Nirmala Sitaraman has transparently communicated the central government’s vision, the Kerala Chief Minister and his cabinet continue to assert that the central government is not adhering to federal norms.

The central government, in its submission to the apex court, highlighted the potential adverse impact on the country’s credit rating if states engage in uncontrolled borrowing. Kerala’s fiscal system is reportedly fraught with multiple challenges, further exacerbating the need for a balanced and sustainable financial approach.

Meanwhile, the Government of Kerala has announced a 2 per cent increase in the Dearness Allowance (DA) for government employees, teachers, and All India Service Officers, along with Dearness Relief for pensioners. Effective from April 1, the hike will be applied retroactively from January 1, 2021. The mechanism for clearing outstanding payments remains unclear amid the ongoing financial strain.

As the state grapples with financial complexities, the decision to decline central aid prompts questions about the government’s fiscal management and the potential implications for the broader economy. The upcoming court hearing is expected to shed light on the path forward and the collaborative efforts needed to address Kerala’s financial challenges.