Exclude borrowings of state entities in debt of state government: Kerala FM to Union FM 

THIRUVANANTHAPURAM: Kerala Finance Minister KN Balagopal has requested Union Finance Minister Nirmala Sitharaman to exclude balances in the public account of the states and borrowings by entities run by them while determining their net borrowing capacity, as was the situation before August 2017, in view of the grave financial crisis the southern state was facing.

Raising concerns over some actions of the Centre in the past five years regarding fixing of states net borrowing ceiling, Balagopal has contended that liabilities of state instrumentalities, like statutory bodies and companies, do not come within the definition of state debt.

Therefore, combining debt of such entities with that of the state government is contrary to the provisions of the Constitution and would "imperil" the borrowing powers of the states and "jeopardise" their development plans, he has said in his letter dated July 22.

However, on July 25, Sitharaman, in a written reply in the Lok Sabha, said that borrowing by state public sector undertakings or their special purpose vehicles (SPVs) will be considered as borrowing by the state government needing consent.

Balagopal, in his letter, has said that Kerala is currently facing a grave financial crisis which poses a serious threat to the government in sustaining spending on welfare schemes for the poor, including housing, education and health among others.

"The financial health of the state has been seriously affected by a reduction in the revenue deficit grant to the tune of around Rs 7,000 crore this year and loss due to stoppage of GST compensation of around Rs 12,000 crore.

"In addition, the Ministry of Finance has arbitrarily, in the name of off-budget borrowing, made a reduction of approximately Rs 4,000 crore in the net borrowing limits of the State.

In all, the State government will have to contend with a reduction of Rs 23,000 crore in the financial resources available to it for financing the budget in the current financial year," he has said.

If these realities being faced by Kerala, as it struggles to emerge from the "economic debilitation wrought by the COVID pandemic", are not recognised by the Centre, the socio-economic security system that the southern state has built over the last several decades will be in jeopardy, Balagopal has said.