Interim relief for Kerala as Centre allocates Rs 4000 crore amid financial crisis

By Aishwarya Nair | First Published Mar 1, 2024, 10:41 AM IST

The Central Government has allocated Rs 4000 crore to Kerala amid the financial crisis in the state after a reduction in the borrowing limit.

Thiruvananthapuram: In a big relief, the Centre has allocated Rs 4000 crore to Kerala which was reeling under financial crisis after a reduction in the borrowing limit. With this, the treasury also recovered from overdraft. The salary and pension of the government employees will not be delayed. The Rs 4000 crore received from the Centre includes Rs 2735 crore as tax share and IGST share.

The state's Finance Minister KN Balagopal had alleged that the crisis in the state had worsened when the Center withheld the money claimed by Kerala. With the receipt of money, the severe financial crisis was temporarily relieved.

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To maintain liquidity, the Treasury Department increased interest rates on short-term fixed deposits at the same time. From March 1 to March 25, deposits will earn a higher interest rate. For 91-day deposits, the interest rate has gone up from 5.9 percent to 7.5 percent. This is going to take effect now.

Earlier, the Centre informed the Supreme Court that the state government's borrowing partners, Kerala Social Security Pension Limited and KIIFB, have no independent sources of revenue. Along with Punjab and Bengal, Kerala is the state with the worst fiscal management in the country. It stated that borrowing was 31 percent of the GDP in 2018-2019 and increased to 39 percent in 2021-22.

In response to a suit that the Kerala government had filed in the Supreme Court challenging the Centre's cap on Kerala's borrowing limit, the central government was responding. The 14th Finance Commission recommends that interest payments never exceed 10 percent of total revenue. However, in Kerala's situation, the interest the state is currently paying will come to 19.98 percent of revenue. The Centre further emphasised that the state is utilising the borrowed funds to pay for ongoing expenses, such as paying salaries and pensions, rather than investing them in profitable ventures.

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