THIRUVANANTHAPURAM: Efforts of the Kerala government to continue keeping off-budget borrowings (OBBs) out of the purview of the state’s public debt have fallen flat before the stern stand taken by the department of expenditure (DE) under the Union ministry of finance.
Multiple communications between the DE and state finance department, between March 31 and June 1, 2022 — exclusively accessed by TNIE — showed that the state had tried its best to account the total borrowings made by the Kerala Infrastructure Investment Fund Board (KIIFB) and the Kerala Social Security Pension Limited (KSSPL) in the last three years as a separate entry so that the burden of that debt won’t affect the state’s net borrowing ceiling (NBC).
Fed up with Kerala's attempts not to account OBBs, the DE warned on May 20 that they might be forced to unilaterally fix the NBC for the state for 2022-23 if the required details of OBBs were not furnished in the prescribed format. The reply of the state filed on May 25 by mentioning net borrowings by both KIIFB and KSSPL was also rejected by the DE, which on June 1 directed the state to furnish details of gross borrowings made during 2020-21 and 2021-22.
The gross borrowing figure reflects the actual borrowing till date while net borrowings indicate only the outstanding sum of the borrowed money. The chain of communications revealed that the DE depended mostly on CAG’s State Finance Audit Report for the year ended March 2020 to shoot down state’s counter arguments on OBBs.
Off-budget borrowings to be adjusted from next financial year
The revised conditions on NBC were communicated to the state finance department on March 31 this year. It said borrowings made by state public sector companies, corporations and special purpose vehicles (SPV) where “principal and/or interest are to be serviced out of the state budgets and/or by assignment of taxes/cess or any other state’s revenue, shall be considered as borrowings made by the state itself for the purpose of issuing consent.”
The DE letter also made it clear that the aforesaid provisions shall be implemented since the beginning of the 15th finance commission award period i.e, 2020-21. This meant that OBBs made by the state in 2020-21 and 2021-22 will be adjusted from the NBC for 2022-23. The letter also said that a review will be conducted on the Rs 4,511 crore additional borrowing allowed to the state in 2021-22 for capital expenditure.
“Any shortfall/ deficiency in actual capital expenditure for 2021-22 by the state in comparison with the targeted capital expenditure for that year will be adjusted from the borrowing ceiling for 2022-23,” DE warned. Such a scenario would lead to a financial emergency in coming months.
The state was asked to furnish details of guarantees issued by the government for past two years, escrowing of future revenues for the past three years and details of borrowings by state public sector firms/corporations, SPVs from 2019-20 up to the estimates for 2022-23 as annexure along with request letter seeking permission for borrowings.
CAG’s State Finance Audit Report for the year ended March 2020 observes that Kerala mobilised Rs 8,773.69 crore in 2019-20 through OBBs by KIIFB and KSSPL where the principal and/or interest are to be serviced out of state budgets.
“Such borrowings have an impact on the revenue and fiscal deficits and thus, have the effect of surpassing the targets set for fiscal indicators under the Kerala Fiscal Responsibility Act, 2003. Creating such liabilities without disclosing them in budget raises questions.”
State’s net borrowing ceiling for 2022-23: Rs 32,439 cr + 0.5% of GSDP based on certain performance criteria in power sector
KSSPL borrowed at least Rs 17,000 cr in the last two fiscals, KIIFB at least Rs 1,000 cr
Threat: Sum may be deducted from net borrowing ceiling, forcing a financial emergency in state