Kerala FM blames Centre for cutting resources by Rs 23,000 crore

Kerala Finance Minister K N Balagopal has written to Nirmala Sitharaman asking her not to include borrowings of state entities while fixing their debt limits

Kerala Finance Minister K N Balagopal has blamed the Union finance ministry for putting it in a grave financial crisis by slashing its resources by Rs 23,000 crore in the current fiscal year.

The Centre has done so by reducing revenue deficit grants, ending goods and services tax (GST) compensation from July, and factoring in borrowings by state entities and public account liability while fixing borrowing limits of Kerala and other states, Balagopal said in a letter to Union Finance Minister Nirmala Sitharaman.  

He requested Sitharaman to exclude balances in the public account of states and borrowings by entities run by them while determining their borrowing limits. This situation was changed after August 2017 by the Union finance ministry, he said while demanding to restore it.  

The state FM said the Centre had reduced the revenue deficit grant of the state to the tune of around Rs 7,000 crore this year. Besides, the end of the GST compensation from July will make the state lose another Rs 12,000. On top of that, the Union finance ministry in the name of off-budget borrowing made a reduction of approximately Rs 4,000 crore in the net borrowing limits of the state.

The letter argued that liabilities of state instrumentalities, like statutory bodies and companies, do not come within the definition of state debt.

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

This clearly violates the Constitution, Balagopal said, highlighting that the Centre did not do so in case of its own borrowing.

Generally, states are allowed to borrow up to 3 per cent of the respective gross state domestic product (GSDP). This limit has been raised since 2020-21 due to lockdowns induced by Covid-19. For the current fiscal year, states are allowed to unconditionally borrow till 3.5 per cent of their respective GSDP. Another 0.5 percentage point borrowing is allowed under certain conditions that the state has to meet such as power sector reforms.

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

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 past decades will be in jeopardy, Balagopal said.