Kerala seeks greater leeway in market borrowing

Wants states’ share of divisible pool up to 50pc

THIRUVANANTHAPURAM: Kerala wants the 15th Finance Commission to raise its limit on market borrowing above 3 per cent (fiscal deficit-GDP ratio) for physical infrastructure projects, and raise the share of divisible pool of the states from 42 to 50 per cent.

In a memorandum presented to the Finance Commission, the Finance Department, Government of Kerala, has also sought the scrapping of the ‘Terms of Reference’ (ToR) 8 that mandates the Commission to use the ‘Population based on 2011 census’ while making recommendations.

The state is keen to see that its infrastructure projects don’t suffer for want of funds as they have medium and long term growth enhancing effects. “This has been suggested as the economy is showing signs of persistent slowdown,” Kerala expressed its concern.

The memorandum argued that in the wake of the GST regime, the states have lost much of the space for fiscal maneuvering, and this clubbed with the surcharges and cesses in Central revenues, have resulted in the shrinking of the divisible pool of states.

“A floor level may be set, below which, share of no state should fall in the divisible pool,” the Kerala memorandum advocated.

Kerala’s share in the divisible pool of Central taxes has consistently fallen since the 11th Finance Commission (FC) Award, before going up marginally in the 14th FC Award. It was 3.06 per cent during 2000-2005 (11th FC), 2.67 per cent during 2005-2010 (12th FC), 2.34 per cent during 2010-2015; (13th FC) and 2.50 per cent during 2015-2020 (14th FC).

The state’s efforts to rein in the population growth – to curb the fertility rate below the replacement rate – though have borne fruit and been hailed internationally, have unfortunately worked against the state while computing the Centre’s share.

Kerala argued that the ToR 8 be deleted. “A specific weight may be assigned to a criterion of “Demographic Goals Achievement”, which should be introduced in the Tax Devolution formula. This should help the states which have achieved lower infant mortality, higher life expectancy and better female literacy,” the memorandum said.

All these finance commissions (FCs), except the 14th, had used 1971 census for the population criterion in tax devolution formula. The 14th FC used 2011 population also by including a criterion, demographic change (by ascribing 17.5 per cent for 1971 population and 10 per cent for 2011 population). The terms of reference (ToR) of the 15th FC has mandated the use of 2011 census data for population criterion

Kerala has been under pressure to find resources to fund its various projects. The nominal GSDP growth in Kerala has fallen to 8.5 per cent in 2015-16 from an average of 12 per cent in the last decade. Though final figures are not available, this trend is likely to continue in the immediate future. Based on the circumstances, the state believes there is an emergent need to prevent the decline in share of Kerala in the divisible pool of Central taxes.

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