Union Budget proposals may shrink Kerala's borrowing powers

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Thiruvananthapuram: The Union Budget proposals may adversely affect Kerala Government's borrowing powers even as it reels under severe financial strain.

The loan availing limit of the Kerala Government would get reduced by a minimum of Rs 4,500 crore next year going by the loan policies unveiled by the Central Government in the Budget.

In the 2021-22 financial year Kerala can take loan up to four percent of its Gross State Domestic Product (GSDP) without any condition, and up to 0.5 percent with the condition that the State would implement electricity reforms mooted by the Central Government.

Though the State has sought the same limit of 4.5% for taking loan in the next fiscal year beginning April 2022, the Centre has not responded positively. So, in the next year, the State can only avail a loan of 3% without condition and 0.5% with condition. So, the reduction in the loan amount limit would be almost Rs 4,500 crore.

In January 2021, the Union Finance Ministry had raised Kerala’s borrowing limit by ₹2,261 crore. This was in response to the implementation of reforms to improve the ease of doing business as stipulated by the Centre. The borrowing limit of seven other States too were enhanced then on the same grounds.

New loan offer a trap for state

Though the Centre has proposed in the Budget a total of Rs 1 lakh crore for enabling the States to avail interest-free loan for the next 50 years, the Kerala Government considers it as a trap. If any loan is taken under this scheme, the State fears that it will be liable to the Central Government for the next 50 years in matters of financial management. Then, the State will have to seek the permission of the Central Government every time it wants to avail loan from other agencies.

The Kerala Government's calculation is that it can repay all the debts to the Central Government by 2032. Then, Kerala will not have to seek the Central Government's approval for taking loans.

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