'Bad idea to cut expenditure during recession, Keynes would have said print money'

Kerala Finance Minister Thomas Issac thinks it's a bad idea to cut government expenditure during a recession and opines that putting money in the hands of the people is the way to kickstart the economy in a post-pandemic world.

Hyderabad: Kerala finance minister Thomas Issac elaborated the situation many states are in with regard to financial resources at their disposal during the COVID-19 pandemic. In conversation with ETV Bharat, Issac ponders over the state of the economy, joblessness and the imminent fall in remittances in the post-COVID world.

"Kerala began the lockdown with the declaration of a financial package of Rs. 20,000 crore. This is essential front-loading the borrowing. That is how we raise money. But at the same time, certain measures including postponing or cutting non-essential expenditure, requesting the employees for a deferred payment are taken," Issac said in an exclusive interview with ETV Bharat.

"Many states are adopting a mixture of such schemes to generate revenue. Besides, Maharashtra is drastically cutting all development schemes to manage COVID-19 related expenditure," Issac added.

"This is a bad idea to cut expenditure during times of recession. Government expenditure has to be counter-cyclical. But state governments are facing hard budget constraints. Keynes would advice print notes but State governments cannot do that, not even borrow additional money," Issac said.

'Budget 2021 will not have any meaning'

Thomas Issac said that union budget which does not even have the word 'slowdown' will not have any meaning in times of COVID-19. "We will wait till May to know whether this is going to be the new normal for the rest of the year," Issac said.

"Kerala has flattened the curve but we are expecting lakhs from other states and from overseas. We might have a second wave. I think this is going to be the new normal," Issac stated.

'I expect 10% shrinking of Kerala's economy'

Kerala finance minister is worried about a scenario where return migration will adversely impact remittances, which constitute 1/4 of the state's GDP. "I expect 10% shrinking of Kerala's economy. Only positive is that Kerala's health workers will be in high demand in the post-pandemic world," Issac said.

If we produce no tire, why do we need rubber for?

Speaking on the crisis faced by cash crop farmers and the government intervention in the sector, said that rubber is the biggest cash crop in Kerala and if the production has drastically come down in industries like tire manufacturing, then cannot expect income from cash crops.

"Plantation sector is in a grim situation. Coconut and coir industries have come to a grinding halt," Issac said.

'Have no fear of inflation'

Kerala finance minister wants the union government to reduce prices of petroleum products and stop the practice of giving tax reduction to corporates. "Centre needs to put money in the hands of people to stimulate demand," Issac said.

'I wouldn't dare to cut a pie of local government funds'

Thomas Issac while detailing the Kerala model in controlling COVID-19 spread in the state, claimed that PHCs and functioning local governments are essential to build a health infrastructure which thrives on quality and sets standards for the rest of the country.

"Politically it is not possible to cut funds for the local governments. That's what rallies people around. We need some kind of participatory government structure at local levels to instil trust in governance," Issac said.