Kerala government to issue bonds worth Rs. 1,000 crore

The State government move to issue bonds worth Rs.1,000 crore to disburse the salary and pensions is likely to further derail the State’s finances and would lead to an extended crisis during the entire financial year.

Finance Department sources told The Hindu here that the Reserve Bank of India (RBI) clearance for issuing the bonds had come as a welcome relief to the government which was reeling under a severe crisis, but diverting the funds for such non-productive purposes will have a direct bearing on the State’s finances soon. The public borrowing limit of the State government will be set only in the coming months, but availing itself of a huge amount in the start of the financial year is being deemed as a clear case of financial indiscretion.

Plan expenditure

The Plan expenditure will only be nominal in the first quarter of the financial year, but will pick up only from the second quarter when administrative and technical sanctions are issued for executing major works.

Unless the government goes in for a major resource mobilisation drive and consolidates its liquidity position, funding the projects will be virtually impossible.

Mobilisation

If the current tax and revenue mobilisation pursuits are an indication, the liquidity position may worsen in the second and third quarters. Even in the event of a emergency, the government was not able to bolster its machinery to optimise and tax and revenue collection.

A major deviation from the current situation might not be possible, sources said.

Treasury curbs

This would force the government to impose curbs on payments from the treasury. For instance, restrictions may be enforced on clearing even the leave surrender, house building advance and such other benefits of government employees on technical grounds.

The treasury will not be closed, but technically there will not be any cash outflow. The Finance Department may set a limit on clearing bills and the arrears due to various sections will keep on mounting.

Even when the treasury was functioning, oral directions are being issued against releasing bills above a certain limit. The same situation may prevail in the second and third quarters of the financial year, sources said.

The development schemes funded by the State government would also come to a halt.

The only option at hand is to take corrective immediate corrective measures like improving the tax collection and putting an end to the practice of issuing stay orders against realising arrears from various avenues, sources said.