Economic Review reveals Kerala's fiscal crisis began before the pandemic

Kerala Finance Minister Thomas Issac
Kerala Finance Minister Thomas Issac

It is official. The COVID-19 pandemic cannot be held responsible for the crisis facing the Kerala Economy. The rot had set in before the virus struck.

The Economic Review 2020, which finance minister T M Thomas Isaac tabled in the Assembly on Thursday, shows that Kerala's growth had nearly halved during 2019-20 fiscal before the virus went on to decimate what was left.

Kerala's growth rate towering over the national average has been the norm. Even in 2017 and 2018 when Isaac and the Planning Board had said demonetisation would destroy Kerala, Kerala's growth stood tall. But 2019-20 saw Kerala's GDP growth rate falling below the national average. If Kerala's was 3.45 per cent, the national GDP growth rate was 4.2 per cent.

Kerala's corresponding rate of growth in 2018-19 was 6.49 per cent. The growth in Gross Value Added (which is an indication of production), too, saw a steep fall. It was 2.6 per cent in 2019-20.

Mighty escape and then, the fall

Significantly, the fall in the economic indicators had happened after Kerala survived the demonetisation, the GST rollout, the Ockhi disaster, the Nipah scourge and the deluge of 2018 with amazing resilience.

In fact, the Review takes great pride in Kerala's performance post demonetisation. It did far better than even in the pre-demonetisation phase. "Kerala’s economy staged a revival in growth during the period from 2016 to 2018, thus reversing a downward slide in the State’s economy between 2013 and 2015," the Review said.

The rates of growth of GSVA (at constant 2011-12 prices) in Kerala were 4.3 per cent, 3.8 per cent and 5.3 per cent for the years 2013-14, 2014-15, and 2015-16 respectively. "These rates of growth of value-added in Kerala were significantly slower than the corresponding Indian averages. Ending this phase of stagnation, Kerala’s economic growth accelerated in 2016-17," the Review said.

Mysterious blight of 2019

If even the deadliest headwinds were unable to push Kerala's onward march, what was it that caused such a precipitous fall for Kerala in 2019. Both Isaac and the Economic Review blame what they called "the delayed" effects of the 2018 and 2019 floods, the general global recession and, of course, the COVID-19 pandemic.

But it looks like agriculture alone was affected by the floods and the recession. The primary sector growth, which registered positive growth for the first time in 2017-18 fiscal, turned negative from 2018-19. But other major sectors like tourism, construction, manufacturing, fishing, aquaculture, trade, hotels and restaurants, education, health, real estate and the IT industry staged a far robust growth after the floods.

Pandemic effect

The drop was seen only in 2019-20. The pandemic cannot be held responsible as the lockdown was announced only at the fag end of 2019-20 fiscal, on March 23 last year.

The finance minister had told the Assembly that there has been a fall of 23.04 per cent in the state's own tax revenues, 65.55 per cent fall in non-tax revenues and a shortfall of 38.49 per cent in central tax transfers to the state.

According to the Planning Board's assessment, the first quarter GVA of 2020-21 is estimated to shrink to around 26 per cent of 2019-20 first quarter GVA. The loss in GVA during the second quarter of 2020-21 compared to the same quarter of the previous year is estimated to be 18.5 per cent.

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