Kerala in dire straits as Centre slashes borrowing limit drastically

Thiruvananthapuram: The Central government has pushed Kerala, which has been showing signs of improvement in its financial situation, into an extremely grave crisis by slashing the borrowing limit drastically. Kerala was permitted to borrow Rs 32,442 crore from the public market this financial year. But giving a shock to the state, the Centre slashed Rs 17,052 crore from this borrowing limit.

Kerala was hoping that at least Rs 25,000 crore would be available for borrowing this year following the centre's decision to cut the borrowing limit. However, after nearly half of the amount was slashed, the State will be able to borrow only Rs 15,390 crore this year. Since Kerala has already borrowed Rs 2,000 crore this financial year, only Rs 13,390 crore is available for borrowing. 

It is for the first time that such a huge amount has been reduced from the borrowing limit. This constitutes a reduction of over Rs 8,000 crore over last year’s borrowing limit of Rs 23,000 crore. 

Indications are that the Centre made a drastic reduction in the borrowing limit because of the debt incurred by the Kerala Infrastructure Investment Fund Board (KIIFB) and pension fund. Sources in the Finance department said that the intimation by the Centre had not specified the reason for its action. 

Borrowing is the chief source of revenue for the State government. The financial instruments floated by Kerala through the Reserve Bank of India are bought by various financial institutions at an average interest rate of 7.5%.

KIIFB to float bonds for Rs 1,000 crore
Meanwhile, KIIFB is planning to source funds by floating bonds worth Rs 1,000 crore again. It is because the agency has scored high ratings that Rs 1,000 crore is being collected through Separate Trading of Registered Interest and Principal of Securities (STRIPS) bonds, which is a kind of debt instrument where the principal and interest are sold separately.