A vague assurance to look into the issues was the only gain for finance minister K N Balagopal from his meeting with union finance minister Nirmala Sitharaman in New Delhi on Tuesday. The Kerala FM met his union counterpart seeking a rethink of two proposed reductions from Kerala's annual borrowing limit this fiscal and the restoration of another cut made in the 2023-24 fiscal.

If Sitharaman had taken a favourable decision, Kerala could have gained ₹6142 crore this fiscal. Instead, the only promise the union finance minister could offer was that she would study the issues in detail and get back.

The biggest deduction from Kerala's annual borrowing limit this fiscal could manifest in the form of a penalty for Kerala's initial reluctance to set up a guarantee redemption fund (GRF), which the Centre said should be 5% of the total guarantees provided by the states to its public sector units.

Finding that Kerala has not set up such a fund, the Centre informed Kerala early this fiscal that 0.25% of its GSDP, which works out to ₹3300 crore, would be subtracted from its annual borrowing limit as a kind of fine for non-compliance.

On Tuesday, Balagopal informed Sitharaman that the amount should not be docked as Kerala had already issued a notification to set aside the GRF.
However, to keep aside 5% of the total guarantees annually would be a huge burden on a cash-strapped state like Kerala.

Balagopal is said to have told Sitharaman that Kerala's total guarantees bunched up to over ₹80,000 crore. 5% of this would be ₹4,000 crore annually. Balagopal wanted this amount set aside in five yearly installments. Sitharaman gave Balagopal a patient hearing but did not commit anything.

The second issue was the Centre's move to make states pay for what Balagopal called "systemic errors" in the IGST calculation. According to the Centre, there are losses in the IGST (Integrated Goods and Services Tax) pool. "They now want the states to share the loss. We have always said that Kerala is not receiving its rightful from the IGST pool (where the GST share of the state is also kept when there is an interstate supply of goods)," Balagopal told reporters in New Delhi after the meeting. Kerala's share in the burden is ₹965 crore.

He said Sitharaman had responded positively to Kerala's concerns. "However, she said an in-depth analysis of the system was required before states could be spared," Balagopal said.

The third issue Balagopal wanted rectified was a deduction of ₹1877 crore the Centre had effected during the 2023-24 fiscal. Balagopal told Sitharaman that this was done without taking the average of the money parked in the public account for three years. This has been a long-standing demand and still Sitharaman could only promise that she would look into it. In short, Balagopal returned empty-handed.