Is Kerala heading to a financial crisis post Onam?

"Kaanam vittum onam unnanam," a Malayalam saying that translates to 'Enjoy Onam even if you have to sell your property,' is being practically implemented by the Kerala government during this Onam season to address the current financial crisis.

The state government's maximum permissible debt limit for the year stands at Rs 20,521 crore. Initially, the Union government had directed the state to restrict borrowing to Rs 15,390 crore by the end of December. However, this deadline was later lifted by the Union government. Consequently, the state government has already borrowed Rs 16,500 crore. In the upcoming week, an additional Rs 2,000 crore will be borrowed to manage Onam-related expenses. As a result, the state will be left with a debt ceiling of only Rs 2,201 crore for the remaining seven months of the fiscal year, necessitating careful financial management.

During a recent interaction with representatives from Manorama and THE WEEK, Finance Minister K.N. Balagopal highlighted that despite the challenging circumstances, the government will not overly restrict Onam-related expenditures. He said, "Nevertheless, there is a shortage of funds. We are nearly reaching our borrowing limit. It is important for the public to understand the reasons behind this situation."

Balagopal said the current crisis for this year was foreseen. "Previously, we had the authorisation to borrow up to five per cent of the Gross State Domestic Product (GSDP). However, this limit has now been reduced to three per cent, resulting in a loss of Rs 15,000 crore for the state. It is important to note that the Union government is permitted to borrow 6.5 per cent of the Gross Domestic Product (GDP) as a loan. Additionally, there was a loss of approximately Rs 9,000 crore due to the reduction in the state's fiscal deficit grant. Moreover, the GST compensation was halted, and loans obtained through KIIFB were brought under the state government's borrowing constraints. All of these factors combined have led to a shortfall of Rs 40,000 crore in the state's financial resources."

Each year, the state government typically encounters a minor crisis following Onam due to expenditures amounting to Rs 8,000 to Rs 9,000 crore. However, this year's situation is notably more severe. Interestingly, this scenario unfolds as the Kerala government boasts the highest-ever tax and non-tax revenue collection in its history. "In 2021, the combined tax and non-tax revenue of the state amounted to Rs 45,000 crore. By 2023, this figure had risen to Rs 70,000 crore. I am uncertain whether any other state has achieved such a remarkable accomplishment," stated the minister.

A potential solution lies in the state securing a special package from the Union government to navigate the period following Onam. In the preceding week, the finance minister met Union Finance Minister Nirmala Sitharaman, seeking an allowance of an "ad hoc borrowing increase" of one per cent of the Gross State Domestic Product (GSDP) above the established borrowing limit for this fiscal year. Additionally, Balagopal appealed to Sitharaman for the urgent release of various pending grants and arrears by the Union government.

For the fiscal year 2022-23, the state has been allocated ₹265 crore under the 'Million-Plus Cities' fund; however, an outstanding balance of ₹51.55 crore remains unsettled. Similarly, there exists an outstanding reimbursement of ₹521.95 crore which the state is yet to receive, pertaining to the Central share in the Indira Gandhi National Widow Pension Scheme, the Indira Gandhi National Disability Pension Scheme, and the Indira Gandhi National Old Age Pension Scheme. An additional amount of Rs 371.36 crore in health grant for the year 2021-22 is also pending.

Furthermore, the Union government is indebted to the state for an amount of ₹750.93 crore in relation to the implementation of the 7th UGC Pay Revision. In addition, the state is eligible to obtain ₹1,925 crore under Part I of the Scheme for Special Assistance to States for capital investments in the fiscal year 2023-24. Kerala has formally requested the Centre to expedite the disbursement of the initial installment.

Interestingly, on Friday, the state's finance minister criticised the UDF, asserting that UDF MPs are not collaborating with the state government in advocating for the state's rightful share from the Union government. He expressed his disappointment that not a single UDF MP from the state was willing to sign the memorandum intended for submission to the Union finance minister.

During a recent gathering of MPs organised by Chief Minister Pinarayi Vijayan, Congress MPs affirmed their unwavering commitment to unite and safeguard the state's interests, according to Balagopal's statement. “Surprisingly, despite this assurance, neither the 18 Lok Sabha MPs from the UDF nor their counterparts in the Rajya Sabha joined us in meeting Sitharaman to provide her with insights into the state's financial standings. It appears that that the UDF MPs share the BJP's interest in trying to impose economic sanctions on Kerala,” he alleged.

Nevertheless, he maintains an optimistic outlook, believing that the state's financial situation will eventually see improvement. Ultimately, the spirit of Onam also embodies optimism!