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Kerala's financial crisis deepens as Centre slashes borrowing limit

The Central government has capped the borrowing limit to Rs 1838 crores during the last quarter of the fiscal year, aggravating Kerala's financial crisis. 

Kerala's financial crisis deepens as Centre slashes borrowing limit anr
First Published Jan 8, 2024, 10:16 AM IST

Thiruvananthapuram: The Central government has initiated steps that will severely strain Kerala's finances. The Kerala government has received a letter from the Union Finance Ministry informing it that it can only obtain loans totaling Rs 1,838 crores during the last quarter of the fiscal year. Kerala was expecting to borrow Rs 7,000 crores during that time, therefore this was a serious setback.

However, after figuring out the average amount in Kerala's public account over the previous three fiscal years, the union government imposed the cap. As the fiscal year concludes in March, the state administration has not yet released cash for any of its several initiatives.

According to state government sources, the sharp reduction in the borrowing cap would worsen the state's financial problems and would have an additional impact on the payment of social welfare pensions. Over 60 lakh people have now experienced five months without receiving their Rs. 1,600 monthly pension.
Kerala has approached the Centre demanding immediate release of the amount due for reforms in the power sector as well as the arrears incurred for various projects along with reviewing the debt limit reduction. As the crisis did not start today or yesterday, the government is seeking the opinion of a wide-ranging committee of experts to suggest ways to mobilize additional resources in the next budget. 

In the fiscal years 2020–21, 2021–2022, and 2022–2023, the state's public account included Rs 12,000 crores, Rs 19,000 crores, and Rs 9,600 crores, respectively. This comes to an average of Rs 14,000 crores. The state's lending cap was then reduced by this amount.

The financial crisis has created a huge burden not only on day-to-day expenses but also on project implementation. If we take the account 230 implementing agencies and 1034 local government bodies in 52 administrative departments, the expenditure has not been halved even near the end of the financial year. Only 3.17 percent of the total expenditure was spent on the Life Scheme, the government's flagship scheme. Considering the shortage of funds, it is proposed to reduce the total project allocation. It is indicated that there may be a reduction of up to eight percent from the current year's contribution amount of 38,629 crores in the next budget. The explanation is that the discrepancy between the execution of the projects and the budget can be avoided. 

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