In a move that could have far-reaching implications on the state’s economy, the Union Ministry of Finance on Friday, 3 February, enforced a cut worth ₹2,700 crore on the off-budget borrowing ceiling of Kerala.
As a result, the state can borrow a maximum of ₹937 crore in the coming three months.
The order on cutting the borrowing limit reached the state Finance Department hardly an hour after Finance Minister KN Balagopal began delivering his budget speech in the Kerala Assembly.
When contacted by South First, Balagopal described the order as a bolt from the blue.
Related: Growing debt has brought Kerala to brink of a mega crisis
An unexpected order
The enforced cut was unexpected. It came a day after the Union budget promised to extend for one more year the facility for states to avail of interest-free loans extendable to 50 years.
Kerala government sources confirmed to South First that the order came at a time when the state Finance Department was planning to borrow ₹8,000 crore in the next three months.
The borrowing was necessary as the state struggles to release even salary and welfare pensions in time.
In the last two months, salary and welfare pension distributions have been badly affected in Kerala, which has created a negative image for the LDF government.
When contacted, Balagopal confirmed receiving the order from the Union Finance Ministry on the day the state presented its budget, hoping it could avail off-budget loans whenever necessary.
He said the order was unexpected, and no alternative arrangements had been made.
Related: Centre’s policy on borrowing is wrong, says Kerala FM
What the order said
The Union Finance Ministry has said in the letter that the indiscriminate availing of loans from different sources by the Kerala Infrastructure Investment Fund Board, or KIIFB, necessitated the cut on off-budget borrowing.
The Union ministry has rejected Kerala’s demand that the liabilities of KIIFB not be treated as a liabilities of the state government as it is an independent body with its own repayment strategies.
However, the Union Finance Ministry is categorical that KIIFB is an integral part of the state government, and the amounts borrowed by it would be treated as the liability of the state.
The order would adversely affect the economic preparations of the state in the next three months, officials said, adding that they are hoping that the Union government would reconsider the decision after three months.
KIFFB, which borrows money from all possible sources, is funding various infrastructure development projects of the state government.
The state government is the guarantor of all the loans availed by KIFFB.
Related: Kerala records strong GSDP growth of 12.01%: Economic Review
Politics behind the move
The state’s ruling CPI(M) believes the opposition of the state’s BJP-RSS leadership to KIFFB might have influenced the Union government to issue such a drastic cut at “the most inappropriate moment”.
In the meantime, Balagopal introduced a social security tax on petroleum products and Indian Made Foreign Liquor to address the prevailing crisis, at least partially.
Buyers will have to pay an additional ₹2 for each litre of petrol or diesel as social security tax.
A social security tax of ₹20 would be levied on full liquor bottles priced below ₹999. In the case of those who consume top brands which are priced above ₹1,000, the tax would be ₹40.
