Kerala’s open market borrowing space is once again at the centre of a political row. The CPI (M)-led LDF government has slammed the Centre for drastically reducing the limit without providing any justifiable reason. Kerala Finance Minister K. N. Balagopal described the decision as an attempt to ‘‘choke the State financially” and has demanded that the BJP government reverse it urgently. More recently, there have been indications from the CPI(M) that Kerala intends to take the matter to the Supreme Court.
The latest dispute first grabbed headlines in late May when Mr. Balagopal shared the contents of a letter from the Union Finance Ministry pegging the open market borrowing limit at ₹15,390 crore, which is lower than the State’s projections. The Kerala government contended that it was eligible to borrow ₹32,442 crore — equivalent to 3% of GSDP — in 2023-24 in line with the Finance Commission recommendations. The State was also confused by the wording of the letter and did not know whether the limit had been set for the first nine months or for the entire 2023-24 fiscal. The letter read, ‘‘It has been decided by the competent authority in Government of India to accord consent to the State Government of Kerala under Article 293 (3) of Constitution of India to raise open market borrowing ₹13,390 crore under proposed borrowing programme of the State for the year 2023-24.” (A borrowing of ₹2,000 crore permitted at the start of the 2023-24 fiscal would be added to this amount, taking the total to ₹15,390 crore.)
Later, in response to a letter from the State Finance Department, the Centre informed the State that the open market borrowing limit for 2023-24 was set at ₹20,521 crore, of which ₹15,390 crore constituted the permitted borrowing for the first nine months (April-December 2023). Mr. Balagopal blamed the Centre for neither providing Kerala with any reason for the reduction nor providing a detailed break-up of the open market borrowing space for the fiscal. Heated exchanges took place between him and the Minister of State for External Affairs V. Muraleedharan, a senior BJP leader from the State. Mr. Muraleedharan denied that the Centre had slashed the open market borrowing limit. He also presented a set of figures to bolster his argument. Mr. Balagopal responded that neither the State government nor the State Finance Department was aware of these figures.
More recently, CPI(M) Central Committee member and former Finance Minister T. M. Thomas Isaac indicated that Kerala intended to take the matter to the Supreme Court, saying that the State’s fiscal rights have now emerged as an ‘‘important political question.”
In recent years, Kerala’s open market borrowing has become a matter of public debate ever since the Comptroller and Auditor General of India warned that the ‘‘off-budget borrowings” by the Kerala Infrastructure Investment Fund Board (KIIFB), a special purpose vehicle for mobilising funds for infrastructure projects, and the Kerala Social Security Pension Ltd (KSSPL) could plunge the State into a ‘‘debt trap,” a fear which the State government rejected as being “wholly unfounded”.
Ignoring the State’s objections, the Centre decided to treat KIIFB and KSSPL borrowings as direct liabilities of the State, resulting in the deduction of ₹14,312.80 crore from the latter’s borrowing limit in four annual instalments. The State government’s argument that these borrowings are contingent liabilities was not accepted. It had further accused the Centre of adopting double standards in the matter as the latter’s own off-budget borrowings are not included in its overall debt or fiscal deficit.
The Left government has for long maintained that the unsympathetic fiscal policies of the Centre have been straining its finances. A prominent grievance is that it is being denied its due share from the central pool.
While the blame game over the open market borrowing limit progresses ahead of the 2024 Lok Sabha polls, it remains to be seen how the reduced ceiling impacts State finances and the LDF government’s development and welfare-oriented initiatives, particularly at a time when the State has already been warned by its Planning Board that mobilising resources for the 14th Five-Year plan period (2022-2027) would be a “challenging task.”
