Kerala financial crisis: Centre says ready to allow loan of Rs 5,000 crore to state

New Delhi: The Union government on Wednesday told the Supreme Court that it is ready to allow the Kerala government to borrow Rs 5,000 crore, subject to certain conditions, contending that giving additional borrowing to Kerala in Financial Year (FY) 2023-24 is neither prudent nor in the interest of the state government.

Senior advocate Kapil Sibal, who appeared for the Kerala government, submitted before a bench of Justices Surya Kant and K V Vishwanathan that Rs 5,000 crore “does not take us anywhere” and the absolute minimum requirement stood at Rs 10,000 crore. 

The court fixed March 21 as the date for hearing original suit by Kerala alleging interference by the Centre in its borrowings.

Additional Solicitor General N Venkataraman, who appeared for the Centre, submitted that the government is ready to give a consent for a borrowing of Rs 5,000 crore, giving utmost consideration to the court's suggestion.

"It is a very special and exceptional measure, to help the state of Kerala to tide over its financial crisis, and meet the end-of-the financial year liabilities of payment of pension, salaries and other committed expenditure," he said.

The ASG said it will be subject to the conditions that this Rs 5,000 crore will be deducted from the Net Borrowing Ceiling (NBC) of Kerala for the first nine months of FY 2024-25. Also, no ad-hoc borrowing will be granted to the state in FY 2024-25 and consent for borrowing in 2024-25 will only be issued on receipt of the prescribed information and documents from the State Government

In a note, the Centre said, going by the expenditure trend of Kerala, it will be extremely difficult for the state government to manage its finances with borrowing of Rs 6,664 crore in the first nine months of the FY 2024-25. 

It is important to note that in FY 2023-24, the state was given total borrowing consent Rs 21,852 crore for the first nine month of the financial year i.e. on an average Rs 2,428 crore per month.  

“However, this was exhausted by the State within the first 6 month of the financial year at an average of Rs 3,642 crore per month.  Therefore, given its past expenditure trend, the State Government of Kerala would not be able to manage in Rs 6,664 crore for the first nine months i.e. at the rate of Rs 740 crore per month.  This will in all probability trigger serious hardships to the people of Kerala,” it said.

In the next FY, 2024-25, the NBC of Kerala as per the recommendations of 15th Finance Commission is 3 per cent of the Gross State Domestic Product (GSDP). The projected GSDP of Kerala for 2024-25 is estimated as Rs 11,19,906 crore. 

The note said, “Thus, based on the projected GSDP, the net borrowing ceiling of Kerala for FY 2024-25 comes to Rs 33,597 crore. Out of this, deduction of Rs 4,711 crore is to be made for off-budget borrowing done by the State in FY 2021-22.  Consequently, the Net Borrowing Ceiling (NBC) of the State for 2024-25 will be Rs 28,886 crore”.

“Consent for 75% of the total borrowing ceiling is to be given to the State in the first nine months of the financial year which comes to Rs 21,664 crore. If out of this amount, consent for borrowing of Rs 15,000 crore demanded by the Plaintiff State is given in advance in March, 2024, the State will be left with the borrowing space of only Rs 6,664 crore to meet its requirements for the first nine months of 2024-25,” the note said.   

The ASG said the Centre has adopted a uniform, non-discriminatory approach for the issue of consent for borrowing.

The Centre’s response came a day after the apex court asked it to consider providing a one-time bailout package to Kerala by March 31 to deal with its financial crisis.