Another avenue for mobilising resources to fight coronavirus

| Updated on March 31, 2020 Published on March 31, 2020

Telangana, Maharashtra have shown the way by holding back salaries of MLAs and State employees

In the fight against Covid-19, the States in peninsular India have been at the forefront both in terms of setting the agenda and implementing welfare and containment measures. In this vein, the Telangana government has taken the bold step of holding back (or deferring payment of) a significant portion of the salary of the bureaucracy and the political establishment with immediate effect. This has prompted the Maharashtra government to follow suit. The move can release considerable resources, given that salaries could account for as much as 30 per cent of the total expenditure of States and pensions, another 10-15 per cent. Invoking the provisions of the Epidemic Diseases Act, 1897, and the more recent Disaster Management Act, 2005, the Telangana government has decided to defer payment of 75 per cent of the salaries of the Chief Minister, MLAs and MPs; 60 per cent of the salary of IAS/IPS officers; 50 per cent of the salary of “other category of employees”; 10 per cent in the case of Class IV employees; and a corresponding reduction in pensions. In the case of Maharashtra, the pattern is the same, but the cuts lower; Class IV employees have been spared. The new norm is likely to be in force “till further orders”. In the case of Telangana, this is estimated to free up at least ₹1,500 crore every month. The two States have set an altogether new precedent in political conduct in times of crises. This is likely to set the ball rolling in other States as well, if not the Centre.

However, the announcements appear to have some rough edges, which should be ironed out. The Telangana government might have gone overboard by extending the deferment of pay to pensioners and Class IV employees; the former, ironically, is most vulnerable to Covid-19. They do not appear to exempt health workers and other providers of essential services. In fact, health workers need a huge raise, something that even the Central package of ₹1.7 lakh crore failed to offer. States should be transparent about how they plan to use the funds impounded. Besides direct transfers to the marginalised, money should be used for creating assets in the health sector.

If the Centre needs to redraft its Budget, so do the States, whose expenditure obligations will rise in the new fiscal even as revenues, including transfers from the Centre, are slated to run low. According to estimates made by SBI’s Ecowrap newsletter, States’ additional health expenditure in 2020-21 could amount to ₹1.6 lakh crore, “which could push the State fiscal deficit from the budgeted 2.06 per cent to 3.5 per cent of GSDP, unless backed up by capital expenditure cuts”. Since the latter is undesirable, it’s a question of doing ‘all it takes’. It is time the Centre, too, took a leaf out of these States’ books.

Published on March 31, 2020

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