Exclude borrowings by state government entities when fixing net borrowing ceiling: Kerala Finance Minister K. N. Balagopal

Reiterating Kerala’s stand on ‘off-budget’ borrowings, Finance Minister K. N. Balagopal has written to Union Finance Minister Nirmala Sitharaman demanding that all balances in the Public Account of the State and the borrowings of State Government entities be excluded when reckoning the net borrowing ceiling of State Governments.

Mr. Balagopal’s demand has come at a time when the Centre has been insisting that the ‘off-budget’ borrowings through the Kerala Infrastructure Investment Fund Board (KIIFB) and the Kerala Social Security Pension Ltd (KSSPL) should be considered a part of the state debt and adjusted against the net borrowing ceiling.

Threat to financial autonomy

Noting that his July 22 letter was being written against the ”backdrop of the grave financial crisis that the State Government is facing currently,” Mr. Balagopal urged the Centre to refrain from the ”Constitutionally untenable attempt to control financial operations of Government Agencies of the States through incorrect interpretation of Article 293(3) & 293(4)” of the Constitution.

Mr. Balagopal accused the Centre of using Article 293(3) to ”vitiate the State’s independence and make systematic inroads into the financial autonomy” of State Governments under the declared objective of fixing the net borrowing ceiling.

”Article 293(3) can only be legitimately used for imposing conditions related to a request for borrowing of a State Government. This cannot be used to control or administer the borrowing of the State Government. Under the Constitution, these are matters that exclusively remain in the domain of the State Government,” Mr. Balagopal said.

Double standards

In August 2017, the Centre had decided to effectively include the balances in the Public Account of the State while reckoning the net borrowing ceiling. In March 2022, the Department of Expenditure stipulated that, for the purpose of fixing the ceiling, borrowings by State public sector companies, corporations, special purpose vehicles, and “other equivalent instruments” would be treated as borrowings made by the State itself.  

Mr. Balagopal observed that the Centre, while foisting such conditions on States to access financial and money markets, scarcely imposes any such limits on its own borrowings by taking into account the borrowings of the agencies set up by it, he said.

In his letter, Mr. Balagopal reiterated that Kerala will be deprived of about ₹ 23,000 crore in the 2022-23 fiscal owing to a combination of factors including a ₹ 7000 crore reduction in revenue deficit grant and discontinuation of Goods and Services Tax (GST) compensation of around ₹ 12000 crore.

Acknowledging financial reality

Mr. Balagopal noted that ”Unless the realities faced by the State, particularly given the fact that the State is struggling to emerge from the economic debilitation wrought by the COVID-19 pandemic, are recognised by the Union Government, the safety of the socio-economic security system that the state has worked so hard to build over the last several decades will be in jeopardy.”

In the latest audit report on State Finances, the Comptroller and Auditor General (CAG) had refused to accept the State’s argument that KIIFB and KSSPL borrowings are not direct liabilities of the State as they are based on government guarantees.