THIRUVANANTHAPURAM/KOCHI: Cash-strapped Kerala got a breather on Sunday after the Central government allowed the states to increase the borrowing limit from 3 per cent of the Gross State Domestic Product (GSDP) to 5 per cent in the ongoing financial year. However, the conditions set by the Centre that the state should undertake specific reform measures including one nation one ration card, ease of doing business, power distribution, etc may put a spoke in Kerala’s wheels.
Finance Minister T M Thomas Isaac told reporters that the increased limit would allow Kerala to borrow an additional Rs 18,087 crore. He requested the Centre to relax some of the conditions laid down for availing the higher limit. He also wants the 5 per cent limit to be based on GSDP projection in the Union Budget and not on current GDP, which will turn negative for both the state and Centre soon due to demand destruction following the lockdown.
“Kerala can source an additional Rs 18,087 crore through the reform. This will certainly help ease the administrative standstill,” said Isaac, adding that this amount was not enough to tide over the current financial crisis. A study by the Gulati Institute of Finance and Taxation (GIFT) has found that Kerala’s GSDP will decline by 13.56 per cent if the economic recovery takes six months, making it the sharpest recession suffered by the state since its formation in 1956. Isaac said considering that the state has incurred a revenue loss of Rs 39,000 crore due to the pandemic and lockdown, the higher borrowing will only make up half of that losses. “The Centre should release the GST dues as well,” he said.
‘What’s the point in setting terms for spending?’
“The Centre said the permission for the different tranches of the borrowing would be linked to certain goals. This is unacceptable. The states have to repay the loans with interest. Then what’s the point in setting conditions for spending?” Finance Minister T M Thomas Isaac asked. He said the Union government should facilitate direct borrowing from the Reserve Bank of India as all the interest rates would go up when all the states rush to borrow funds from the market.
Jose Sebastian, an economist and a retired faculty at GIFT, said the increase in borrowing limit has come in the way of the state looking at other revenue mobilisation routes. “Kerala could have explored an increase in property tax, electricity rates and other user fees,” said Sebastian, adding that anyway a large amount of the funds raised will go to pay the salaries and pensions while the state’s interest burden goes up. “This has created a financial illusion in the minds of the public that they don’t need to contribute anything and that the public services will come to them on a platter,” he said.
No move to raise pension age: Isaac
Thomas Isaac said the state government has no plans to raise the retirement age of its employees. There was no ban on new recruitment either. Vacancies will be filled in time, he said.