Kerala on the verge of grave financial crisis

Centre effects ₹6,000-crore cut in annual borrowing limit for current financial year

The Centre has pushed the State government to the brink of a grave financial crisis by effecting a ₹6,000-crore cut in its annual borrowing limit for the current financial year.

Finance Department sources told The Hindu that the decision that is applicable only to Kerala would put the funds-starved government in dire straits and could have a serious bearing on its routine functions. The State has been facing a resource crunch following a steep fall in revenue collection and soaring expenditure.

The decision is being construed as a deft political move of the National Democratic Alliance, especially the Bharatiya Janata Party, to put the Left Democratic Front in the dock ahead of a string of Assembly byelections due soon and the local body elections scheduled in a year.

The State government’s consistent demand to enhance its annual borrowing limit continues to remain a cry in the wilderness. The State would be constrained to resort to extreme steps to tide over the crisis and that would draw flak from its political opponents.

While the revenue collection remains static at around 10%, the expenditure has been estimated at 16%. Since 2013-14, the revenue collection has been plummeting from 20% against a steady growth in expenditure.

Prime reasons

A variety of reasons, including the impact of the implementation of the Goods and Services Tax, are being cited as the prime reasons for the current resource crunch.

The State had been looking forward to shore up its revenue through an amnesty scheme for collecting value-added tax arrears, by bolstering the enforcement to plug GST revenue leak and such others. But most of such initiatives had to be deferred once the model code of conduct for the Lok Sabha election came into force and now a crisis is looming large over the State, sources said.

Public account borrowing through Treasury Savings Bank was the prime option the State had in its ambit to weather such crises earlier. Once the Centre choked this route since 2016-17, the State finances have been gasping for a revival.

The present political situation does not proffer any hope for a review in the Centre’s stand and the government is now looking forward to the tax collection in July. Any dip in collection would only intensify the crisis, sources said.