Flood hit Kerala seeks to raise ₹ 10,500 crore debt for rebuilding

Kerala CM Pinarayi Vijayan. Photo: Ramesh Pathania/Mint

Thiruvananthapuram: Flood-hit Kerala wants to raise ₹ 10,500 crore debt for rebuilding, and to do so has requested the centre to increase the borrowing limit for the state to 4.5% of state revenue, up from 3% now, said chief minister Pinarayi Vijayan in a press meet in Thiruvananthapuram on Tuesday. The state government is submitting a comprehensive plan to this effect.

Vijayan appeared calmer than he was in the past few days as the administration focuses on moving on from the state’s worst calamity ever. He said that Kerala will also impose a 10% cess in addition to GST on goods, to raise money for the relief and rehabilitation works.

“Cabinet decided to submit to the Central Govt a comprehensive plan that will enable the rehabilitation of the affected people and the rebuilding of Kerala. Our aim is not merely a restoration of the State to pre-flood times but the creation of a new Kerala,” the office of chief minister’s official Twitter handle read on Tuesday noon.

“The reconstruction demands mobilization of resources in a large way. The State will demand Centre to raise the ceiling on borrowing for the State to 4.5% of the GDP, which is pegged at 3% now. This will help to raise an additional Rs.10,500Cr from the market,” another tweet said.

The Kerala government is also going to request the governor to call for a special session of legislative assembly on 30 August to discuss relief, rehabilitation and reconstruction.

Experts said that neither the Central Goods and Services (CGST) Act or the state Goods and Services Acts have any umbrella provision to letting states to impose a cess related to GST.

States may either have to approach the GST Council with a proposal for a cess linked to GST or opt for levying a cess not linked to GST. In the latter case, the computation of the cess could be linked to a percentage of GST levied.

Raising the borrowing limit has been a key demand of many states as they feel the present cap is a constraint on raising resources for various development purposes.

Kerala, for instance, created a special purpose vehicle to circumvent the borrowing limit and mobilize resource, when the current government came into power in 2016. The body, called ‘Kerala Infrastructure Investment Board’, had a target to raise ₹ 50,000 crore in five years as loans from home and abroad to be spend on building social and physical infrastructure.

Kerala has a revenue deficit of ₹ 12,860 crore, or 1.7% of the state gross domestic product (SGDP). The state government has budgeted its total expenditure to rise 14% to ₹ 1.3 trillion in 2018-19. Kerala is the 10th largest economy in India and contributes around 4.2% of India’s GDP. Its GSDP growth rate was around 7.4% at constant prices in 2016-17.

ALSO READ | How the Kerala economy fared before the floods

When the crisis hit, one of the first talking points was how the cash-strapped state would mobilize resources for rebuilding. It has received ₹ 600 crore from the Centre so far, and about ₹ 200 crore from other states and a matching amount as private donations, Mint reported on Monday. It also hiked liquor taxes by 0.5% to 3.5% for 100 days last week, to get an additional revenue of ₹ 230 crore.

Vijayan today also demanded a ₹ 2,600 crore special package on central projects like Mahatma Gandhi National Rural Employment Gurantee Act (MGNREGA). A special session of the state assembly will meet to discuss relief, rehabilitation and rebuilding of the state on 30 August, he said.

“We will not just recreating what is destroyed. We will build a new Kerala,” he said.

He said that at the time of crisis, the decision to put a moratorium on the bank loans in Kerala has been a major relief, but the same needs to be done in private non-banking loans too.

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UAE offers ₹ 750 crore

The United Arab Emirates (UAE) has offered ₹ 750 crore, the latest in a series of significant donations coming to Kerala from Gulf countries. Kerala is has a more than half a century-old migration history with the Gulf countries, one of the oldest and longest migration patterns in India.

An estimated 10% of Kerala’s 30 million population live and work in the Gulf, which could mean Saudi Arabia, the UAE, Kuwait, Qatar, Oman or Bahrain. They float almost a third of the Kerala’s ₹ 3 trillion net state domestic product.

“Gulf countries are a second home to many Keralites. Malayalees not only forms a major core of the labour force there, but has also made strong associations. They are willing to help us in a big way now,” Vijayan said.