Kerala Government Secretariat in Thiruvananthapuram
Kerala Government Secretariat in Thiruvananthapuram

Kerala borrowings cap: Tighten fiscal belt

The Finance Commission sets the limit for open market borrowings by the states.

Kerala’s financial troubles have just got worse. The Union government recently fixed the state’s ceiling for open market borrowings at Rs 15,390 crore for the first nine months of this fiscal year, about Rs 7,000 crore less than what the state expected. This is a body blow for a government that depends on borrowings to manage even routine expenses. Kerala wrote to the Centre seeking details of the calculation that led to the slashing of the net borrowing limit. While there’s no doubt that the Centre ought to explain the reasons for the sake of transparency and clarity, the fact remains that the state government has itself to blame for the situation.

It is paying the price for past financial misadventures. The Finance Commission sets the limit for open market borrowings by the states. For the current fiscal, it has been fixed at 3% of GSDP, which applies to all. What that means is that Kerala can be allowed to borrow up to Rs 32,442 crore. It won’t be able to because of its past off-budget borrowings (OBB). The Centre had decided to adjust OBBs by states against their net borrowing ceiling to ensure fiscal prudence and discipline. Kerala has huge accumulated OBBs because of borrowings by the Kerala Infrastructure Investment Fund Board and Kerala Social Security Pension Limited. So, the amount it can borrow during the year could come down by nearly half of what it is entitled to.

The enormity of Kerala’s debt burden can be gauged from its outstanding liability, having grown from Rs 2,67,585 crore in 2019-20 to Rs 3,90,859 crore in 2020-23. As a percentage of GSDP, it has increased from 32.5% to 36.38% during the period. It’s high time the Kerala government played by the rules and put its finances back on track. It needs to look beyond borrowings to stay in business. There’s thinking within the ruling Left that instead of blaming the Centre, the government should ensure effective tax collection to stabilise the economy. Numbers show that taxes to the tune of Rs 20,000 crore were raised but not realised (at the end of 2021-22), and Rs 12,724 crore of which was not under any dispute. While borrowings may be necessary to manage expenses, the government must look at reducing liabilities in the interest of Kerala’s financial health. Tightening tax collection and mobilising additional revenue resources are the way to do it.

The New Indian Express