Despite repeated rejections, Balagopal hopes Sitharaman will have a change of heart this time
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The Narendra Modi dispensation has perennially indicated that it is cold to Kerala’s charms. Whether Arun Jaitley or his successor Nirmala Sitharaman, both these union finance ministers have routinely brushed aside Kerala's ceaseless entreaties, be it for a Rs 25,000 crore special package or Rs 5,000 crore for Vizhinjam or a 0.5% increase in the state's open market borrowing capacity or even for something that Kerala is entitled to like an AIIMS or an International Research Institute in Ayurveda.
If the CPM-led LDF government is assumed to be a lover, then its affair with the BJP-led Centre can be seen as a hopeless case of unrequited love. While suitors are incrementally disheartened with every rejection, each Budget-day rebuff seems to infuse fresh optimism into the Kerala government. At the very next chance, Kerala comes up with a longer list of demands (grander and more diverse appeals to melt a heart of stone).
Five years ago, Kerala's major demand was a 0.5% increase in borrowing limits (please be kind enough to look my way). Last year it wanted a Rs 24,000 crore special package in addition to the enlargement of the borrowing limit (hold me in your embrace).
And this year, Kerala wants not just the Rs 25,000 crore package but also a multiplicity of smaller special packages - Rs 2,000 crore for migrants, Rs 4,500 crore for climate resilience, Rs 3,940 for elderly care, Rs 2,329 crore for tackling sea erosion, Rs 2,000 crore for Wayanad rehab, even Rs 800-odd crore for official vehicle replacement (embrace me tight and shower me with kisses).
Waiting for jackpot
Forget Kerala's clamour for a Rs 24,000 crore special package, even Andhra Pradesh, a state that is crucial for the survival of the third Modi government, could manage to secure only Rs 15,000 crore as special package from Nirmala Sitharaman in her full Budget last July.
Kerala persists with this demand because of the severe liquidity stress it faces. In 2023-24, the share of Kerala’s own revenue in the total revenue expenditure has been as high as 63.58%; the national average is only 53.9%. Central transfers have plummeted to historic lows after the GST compensation and revenue deficit grants stopped and the gradual decline in transfers from the divisible pool of taxes.
Kerala wants the Rs 24,000 crore transferred over two years.
Urgent assistance for Wayanad
Kerala expects Rs 2,000 crore as immediate assistance for Wayanad. It wants to rehabilitate survivors of the Mundakkai-Chooralmalai landslides in a self-sustainable township. Finance minister K N Balagopal had personally met union finance minister Nirmala Sitharaman last December and told her that the government wanted to incorporate global best practices, adhering to ‘Build Back Better’ principles. The plan includes rebuilding homes, schools, healthcare facilities, and critical infrastructure with modern safety standards.
Special package for Vizhinjam
A Rs 5,000 crore package has been one of the LDF government's long-standing demands. The LDF government claims that the Vizhinjam International Multipurpose Seaport would achieve 100% capacity utilization by the first year of operations (2028). Here are some of the works that would be taken up in the 2025-26 fiscal: rail connectivity to Port, Port-based Industry Corridor/Maritime Cluster, Green Hydrogen Hub, Seafood Park, and Logistics and Fish Landing Centre.
Vizhinjam’s VGF conundrum
A new demand related to Vizhinjam relates to viability gap funding (VGF). The original scheme was for the Centre and Kerala to provide the same amount (Rs 817 crore each) as the VGF for the project. In a surprise move last December, the Centre demanded that its share of the VGF be repaid by Kerala with interest.
Kerala furiously objected saying it is a complete deviation from the country's VGF policy. As per policy, it is a one-time grant. It is so for major infra projects in the country, including the Colachel Port. In Vizhinjam's case alone, the Centre wants the VGF to be considered a loan.
Balagopal has asked Sitharaman to restore the original form of the VGF.
CSS: flexibility of borrowing
Centrally Sponsored Schemes (CSS) are implemented on a cost-sharing basis. The need to find more money for the CSS after the Centre reduced its share has imposed huge burden on states like Kerala. The Jal Jeevan Mission, for instance, requires about Rs 17,500 crore as Kerala's share over next two years. This means that funds from other productive investments will have to be diverted to implement the Jal Jeevan Mission. So here's Kerala's recommendation to Sitharaman: Borrowing for CSS should not be included in a state's annual borrowing limit.
Tyranny of branding
The Centre has launched the 'Scheme for Special Assistance to States for Capital Investment' (CAPEX Scheme) to facilitate higher capital investment by states. This is a 50-year interest-free loan for capital investment projects. One of the mandatory conditions to avail the benefits of the scheme is branding/naming of Centrally Sponsored Schemes.
The implication is that any project implemented using these funds should be named or branded in such a way that it looks like a central scheme. Kerala had strongly objected to this and has, therefore, been deprived of these CAPEX funds. Kerala has argued that this is only a loan and not related to centrally sponsored schemes. Balagopal wants the branding pre-condition taken out. He expects an announcement in the coming Union Budget.
Kerala's scrap vehicle burden
The Centre's policy of scrapping 15-year-old vehicles has put Kerala in a fix. Nearly 4,000 vehicles owned by the government, local bodies, PSUs and other autonomous institutions have already expired because of the 15-year rule. The government is now forced to sell these vehicles at scrap value, even though many of them are in good condition. "The number of government vehicles that are being stopped from use due to the 15-year age limit is increasing daily, affecting the day-to-day functions of the offices," a top source in the finance minister's office said.
Many departments have placed requests for vehicle replacements. But, funds shortage have rendered the state helpless. According to official estimates, Rs 450 crore is required to replace vehicles that have crossed retirement age, and Rs 375 crore to replace superannuated KSRTC buses. Balagopal has asked Sitharaman to either review the vehicle scrap policy or provide Rs 800 crore for vehicle replacement.
Kerala's other major demands
1) Change the GST revenue-sharing mechanism from the present 50:50 ratio to a 60:40 ratio in favour of the State Governments.
2) Rs 4500 crore for the Kerala State Climate Change Adaptation Mission (KSCCAM). The Mission has identified nine priority projects, with an initial finance requirement of Rs 22,500 crore between 2025 and 2030.
3) Rs 1,000 crore to tackle human-animal conflict.
4) Rs 3,940 crore to meet the needs of Kerala's growing elderly population, including healthcare expenses, expansion of schemes, and costs associated with functional disability.
5) Enhance the normal borrowing ceiling of the State to 3.5% from 3% even while extending the additional borrowing of 0.5% of GSDP linked to power sector reforms to 2025-26.
6) Exempt borrowings of Kerala Infrastructure Investment Fund Board (KIIFB) and Kerala Social Security Pension Limited (KSSPL) from the state’s borrowing limits.
7) Rs 2,000 crore to settle the outstanding liabilities of Supplyco and simultaneously establish the Paddy Procurement Centres and milling infrastructure.
8) Rs 1,293 crore for the second campus of the Regional Cancer Centre.
9) Exclude land acquisition costs from borrowing limit
10) Continue the GST compensation scheme to states until systemic issues are fully corrected and the original promise of GST revenue is attained.
11) Rs 300 crore annual Budget Provision to the Kerala Non-Resident Keralites Welfare Board (KNRWB).
12) Rs 2,000 crore special package for migrant workers.