State participated in just one market borrowing against 9 in FY23
By CL Jose
THIRUVANANTHAPURAM/July 30-2022: Kerala didn’t show up for the Rs1000 crore market borrowing on July 26 as scheduled by the Reserve Bank of India (RBI).
The unconfirmed reports that the Centre has yet again intervened in the state’s borrowing is too bizarre a guess, according to market observers.
Nonetheless, the non-participation of Kerala (along with other 7 states) at the market borrowing this time has raised many an eyebrow among the public finance experts in the state.
The question doing rounds currently is whether the Centre has once again raised the issue of Kerala’s off-balance sheet borrowings and restrained the state from market borrowing on July 26.
Centre had a few months ago brought in restrictions on borrowings by the states with sizeable off-balance sheet borrowings stating that these loans should be regarded as their own budget borrowings and hence would affect the net borrowing ceiling (NBC) permitted to them.
However, the curb was relaxed a few weeks back and the states were allowed to borrow with restrictions, albeit less severe.
States embark on market borrowings, which account for about three-fourths of their borrowings aimed at funding the fiscal deficit, by selling bonds or state development loans (SDLs) basically to institutions like banks and insurance companies.
The Rs1000 crore borrowing on July 26 would have been only the second borrowing in the past 4 months of the current financial year if it did take place, the earlier one being the Rs1500 crore, which was done on May 31.
Centre’s curbs on state’s borrowing was the reason why Kerala’s borrowing in the first quarter (Q1) was restricted to just Rs1500 crore despite a mandate of Rs9000 crore as per RBI’s borrowing calendar.
Q2 borrowing calendar
In fact, Kerala’s borrowing calendar for the second quarter (Q2) too mandates the state to borrow the same amount of Rs9000 crore and the first borrowing in Q2 was supposed to have taken place on July 26, which didn’t.
Analysts talking to businessbenchmark.news said the non-participation last week is intriguing as they have no reason to imagine that Kerala, which is said to be under tremendous financial stress, would fritter away a chance to borrow at this juncture.
More so because the state had chance to borrow only Rs1500 crore during the first quarter, thanks to the tough stand taken by the Centre.
Centre had relaxed its stand thereafter and allowed them to forgo those borrowings made during 2020-21 and asked them to adjust the borrowings made during 2021-22 over the forthcoming four years.
The Centre-state relations have been smouldering for some time now with both the chief minister Pinarayi Vijayan and the former finance minister Dr Thomas Isaac having pointed the finger at the Centre for not respecting the financial independence of states.
Balagopal faults Centre
The finance minister, KN Balagopal (seen in the picture) cries foul at the way Centre has been interfering in the states’ borrowing exercises by invoking the net borrowing ceiling (NBC) norms. He said there had been a reduction of approximately Rs7,000 crore in the revenue deficit grant.
“Moreover, the Centre has also refused to extend the GST compensation of over Rs12,000 crore Kerala had been receiving until this year. Over Rs14,000 crore borrowed by KIIFB and KSSPL is now equated as the government debt while computing NBC,” he bemoaned.
Though Centre has allowed to adjust the ‘Rs14,000 crore off-balance sheet borrowinhgs’ over the next four years, it dents the annual borrowings to the extent of about Rs3,500 crore a year.
“Thus the Rs7,000 crore cut in the revenue deficit grant, the doing away of Rs12,000 crore in GST compensation and the additional Rs3,500 crore to be set aside annually towards the adjustment of Rs14,000 crore off-balanance sheet borrowings, together will impact the state’s finances to the extent of about Rs22,500 crore per year,” the FM had explained earlier.
But interestingly, Kerala is the second largest recipient of revenue deficit grant during the 2021-26 period at Rs37,814 crore after only West Bengal whose grant has been pegged at Rs40,115 crore for the said period by the 15th Finance Commission. During 2022-23, Kerala will receive Rs13,174 crore towards the revenue deficit grant.
