Thiruvananthapuram: The central government’s decision to increase the borrowing limit of state governments from the existing 3% of gross state domestic product (GSDP) to 4% has come as a major reprieve for Kerala, which is reeling under heavy financial stress
“The net borrowings for states will be allowed at 4% of GSDP for FY 2021-22 as per the recommendations of 15th Finance Commission. Part of this is earmarked for incremental capital expenditure. Additional borrowing ceiling of 0.5% of GSDP will be provided subject to conditions. States (are) expected to reach a fiscal deficit of 3% of GSDP by 2023-24 as recommended by the 15th Finance Commission,” stated the Union Budget.
The increased limit will enable the state to borrow a little over Rs 8,000 crore, additionally, during FY 2021-22. The state was eligible for a borrowing of Rs 24,000 crore when the borrowing limit was set at 3%. This was a long pending demand from all states. Kerala had on several occasions asked the Centre to increase the borrowing limit from 3% to 5%.
The one-time permission — recently given by the central government on account of the financial crisis due to Covid-19 — had given the state a conditional permission to mobilise an additional 2% of GSDP from the market.
The condition-linked additional borrowing of 0.5% announced in the Budget is expected to give further leeway to the government.
Planning board member K Ravi Raman said that the good part of the Union Budget is the increase in borrowing limit, allocation of Rs 65,000 crore for national highway development and Rs 1,957 crore allocated for the second phase development works of Kochi Metro. “But, there are some worrying facts. There is a sharp decline in the allocation to rural employment under MGNREGA. There are no measures for support to planation crops,” he said.
Experts, in general, are of the opinion that the borrowing limit will help Kerala to offset the impact of proposed salary hike of government employees on perilous state coffers.
“The enhanced borrowing limit would ensure that the state won’t slip into the abyss of acute financial crisis. But, it would not be sufficient to meet capital expenditure needs,” said former chairman of state finance commission B A Prakash.
The financial burden on state exchequer on account of pay revision alone is Rs 4,810 crore. This, in effect, would drain around Rs 6,000 from state coffers, he added.
However, chief minister Pinarayi Vijayan and finance minister T M Thomas Isaac were silent on the borrowing limit enhancement, a demand which both of them had been raising relentlessly over the last four-and-a-half years.