THIRUVANANTHAPURAM: Kerala is likely to have a tough time paying salaries, pensions and social security pensions in the second half of this financial year from the third quarter as its revenues would fall short by a whopping Rs 23,000 crore than what was estimated.
Reason: The various cuts imposed by the Union government and its decision to stop paying GST compensation to states. Finance Minister K N Balagopal admitted it too.
“There will not be any immediate fallout (from the cut in Centre’s flow of funds). We will be able to manage salary, pension and social security pension payments for now. However, there will be a crisis in the second half of the fiscal if a substantial portion of the funds is not reinstated,” he told TNIE.
The state will face a shortage of around Rs 23,000 crore in the fund flow from the Centre in this fiscal, he said.
The crisis has been triggered by the Union government’s decision to adjust off-budget borrowings (OBBs) worth Rs 14,000 crore in the net borrowing ceiling (NBC) of the state.
It will be done in phases over four years. This year, it will drop by Rs 3,578 crore from the previously calculated NBC of Rs 32,439 crore.
The Centre has also effected a cut of Rs 7,000 crore in revenue deficit grant this year.
This apart, the state will not get around Rs 12,000 crore that it received as GST compensation last year, as the Centre has decided to stop the same.
Balagopal told the assembly last week that the state was facing a crisis and had requested the Opposition’s support to deal with the “discriminatory treatment” by the Centre.
A source said after the OBB adjustment, Kerala is supposed to get the nod for borrowing Rs 28,861 crore this year.
“However, we are unsure whether the entire amount will be cleared,” said the source.
Crisis to hit housing, edu & health first
The source said as of now, the Centre’s nod is to borrow only Rs 17,936 crore until December, which is Rs 5,656 crore less than what was allowed last year.
“The borrowing limit for the last quarter - January to March - will be issued later,” said the source.
The immediate impact of the financial crisis will manifest as difficulty in meeting expenses for welfare schemes for the poor and to manage housing, education and healthcare expenditures.
The LIFE Mission housing scheme, which needs huge capital allocation, may also slow down. Confusion over providing social security pensions also remains as Kerala Social Security Pension Ltd (KSSPL) will face difficulty in making independent internal borrowings as per the new norms.
“During Onam, three months’ welfare pension will have to be distributed to 52.5 lakh pensioners. This will require around Rs 2,500 crore. If KSSPL borrows the amount from agencies like Kerala State Financial Enterprises or Kerala Financial Corporation, it will further affect the state’s borrowing ceiling,” said the source.
On how the government would deal with the crisis in welfare pension, Balagopal said they will examine all legal options.
“The government wants to explore ways to avail of loans without affecting the NBC,” he said, adding there wouldn’t be a crisis in pension distribution. Balagopal was also optimistic about the Union government agreeing to states’ demand to extend GST compensation payment.
“Almost all the states put for the demand. Last year, we got Rs 12,000 crore as compensation. The extension will help us immensely,” he said. On the NBC issue, Balagopal said the government will continue negotiations with the Union finance ministry for further relaxation.
Revenue loss
Rs 3,578 crore This year’s drop from the previously calculated net borrowing ceiling of Rs 32,439 crore.
Rs 7,000 crore Cut in revenue deficit grant.
Rs 12,000 crore GST compensation of last year. The Centre has decided to stop it from this year.