Kerala approcahes Centre again seeking nod for additional borrowing

‘Govt should think Out-Of-The-Box; tap highly paid employees with a promise to pay back’

THIRUVANANTHAPURAM: Kerala Government has once again made the oft-repeated request to the Central Government to raise its borrowing limit up to at least 4 per cent of the gross domestic product (GDP) in the wake of the severe crisis triggered by the CoVID 19.

The Kerala chief minister Pinarayi Vijayan also said that Nabard should initiate a comprehensive revival package for the state including a special loan from the Rural Infrastructure Development Fund (RIDF) at a concessional rate of 2 per cent.

While briefing the reporters on the crucial phase the state is going through and the relief package the state has sought from the Centre, the Kerala chief minister said he had already approached the Nabard chairman on his demands.

Despite the urgency and propriety of the request to raise the borrowing limit by one percentage point, experts aver that Central Government is unlikely to concede the state demand as it could amount to violating the FRBM tenet of three per cent ceiling for state borrowing.

Kerala aims to borrow an additional Rs10,000 crore if the Centre green-signals it to borrow up to 4 per cent of GDP, which is projected to be Rs9,78,064 crore for 2020-21.  The 2020-21 budget proposes to borrow Rs29,295 crore (3 per cent of GSDP)

“I have requested Nabard to spearhead a revival package for the state, which has been hit hard by the virulent CoVID 19. I have also requested Nabard to reduce the interest rate charged on refinance to the banks by at least 2.5 per cent,” the CM told the reporters.

Vijayan also said Nabard should seriously consider 100 per cent refinance to Kerala along the lines of North East states at a time when the state’s coffers are finding it difficult to cope with the grave situation handed out by the new virus, more so because this is one state that has been devastated by two severe floods in the past two years.

During the video conference with the Prime Minister, the Kerala CM alerted the Prime Minister Modi about the need to support the state at this juncture through additional aids in the form of financial support, improving the terms of employment guarantee scheme, increase in supply of food grains, support to the employees in the unorganised sector etc.

 

State finances may go for a toss

The state is virtually at the end of its rope as far is its finances are concerned. The state has announced a Rs20,000 crore relief package a few days back even as the treasury remains closed to larger spends.

Though the finance minister Dr Thomas Isaac, who is an avid proponent of debt financing, says the state could front-load its borrowings earmarked for 2020-21 from next month onwards, the staring question is where he will go to bring the finance to run the show for the remaining one full year.

Moreover, an ordinary sensible individual of the state is at a loss as to where KIIFB is going to bring in the funds from, in order to finance the additional projects worth about Rs45000 crore announced to be completed in the next few years. Dr Isaac has already said KIIFB would raise Rs20000 crore from the market in the next two years.

According to KIIFB’s own financials, the Board is left with hardly one fifth of the funds it aims to spend in the next two years, according to experts.

Financial experts warn the government to think practicably and address the issue sensibly and rationally in order to overcome the sad state we are in.

Talking to businessbenchmark.news, Dr VK Vijaykumar, reputed economist and investment strategist at Geojit Financial Services, said, “We have to fight Covid-19 on a war footing. As the aphorism goes, “everything is fair in love & war”, but actions have to be practicable and sustainable.”

As is made to understand, Kerala is planning to borrow around 50 per cent of its 2020-21 borrowings in April itself. Other states also may try to front-load their borrowings. This is unlikely to work out and more seriously, it will create stress in the credit market. There is already strain in financial markets.

With high Debt-GSDP ratio and unsustainably high revenue deficits, financial professionals fear a debt trap round the corner. Dr Vijaykumar says the government should be able to think Out-Of-The-Box.

He said what the government should try is, it should seek to freeze, say 25 per cent of salaries and pensions of very highly paid employees and pensioners – with a promise to pay back when the situation stabilises, and utilize that money to help the poor and the vulnerable.

“Mind you, there are several thousands in Kerala earning salaries above Rs1.5 lakh and pensions above Rs60,000 a month,” he added.

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