“As per budgeted figures, Kerala should have received around Rs 10,000 cr of public borrowing in the last quarter. Instead, the state has received only Rs 1,900 cr,” Isaac said.

Centres drastic cut in allocations has pushed Kerala into financial crisis FM Isaac
news Finance Friday, January 10, 2020 - 13:19

“Kerala’s public borrowing, the compensation payment on Goods and Services Tax (GST) and the Centre’s share in taxes all have been drastically reduced for the last quarters," announced Kerala Finance Minister Thomas Isaac at a press meet on Thursday, pointing out that these drastic cuts have pushed the state into a financial crisis.

As per the budgeted figures, Kerala should have received around Rs 10,000 crore of public borrowing in the last quarter. Instead, the state has received only Rs 1,900 crore. "The reason cited was that Kerala had over-borrowed in 2016-17,” Isaac said.

The reference is to the increase in public deposit in the treasury. He breaks it down: “The large part of the treasury deposit is nothing but the government department’s own treasury accounts. The second component is the provident fund and other payments of the employees themselves and salary arrears, and finally, there is a small component of public deposit, which are loans that we need to return at some point.”

According to the Finance Minister, never before has an increase in public account been identified as the reason to reduce public borrowing. “This kind of drastic reduction in the public borrowing leaves no hope for the government to make any adjustment, that too, particularly in a year when there was a serious erosion in the tax revenue as well as transferred taxes of the Centre,” he said.

States forced into expenditure cut

Isaac further noted that the tax share budgeted in the Union government’s budget itself in the last quarter would be around Rs 4,000 crore lesser, and Kerala has not received GST compensation. Hence, Kerala’s revenue would be lesser by around Rs 80,000 crore, Issac said.

"How can a state government be thrust with a revenue loss like this. Don’t do this in the height of a slowdown, then you are forcing the government to cut down the expenditure,” he added.

Isaac explained why reducing funds to states would, in turn, affect the economy. “When all state governments are forced to reduce expenditure because central transfers are getting reduced, their own revenues are reduced. That will be disastrous for the economy because the state governments spend more than 60% of the intergovernmental expenditure in India. And with public fund allocation reducing, Kerala has been pushed into a serious financial crisis,” he said.

The Centre has reduced the allocations for two centrally-sponsored schemes, viz. the Employment Guarantee Scheme and Paddy Procurement. Only the arrears are to be paid, which is more than Rs 2000 crore. He noted that this kind of situation has not occurred previously. 

Flood Relief

The state Finance Minister also highlighted Kerala's exclusion from the Centre's list of seven states that will receive a calamity fund of Rs 5,908 crore from the National Disaster Relief Fund (NDRF), despite repeated pleas for funds.

In 2018, the state got around Rs 1,600 crore as flood relief from the National Disaster Relief Fund (NDRF). However, after the exclusion from the list for relief funds for 2019 floods, there were claims that Kerala has some unused amount from the funds the Centre had allotted to the state for the 2018 floods. 

“Regarding the spending of flood relief, that money has already been accounted for in reconstruction projects. We didn’t pay the money as an advance for the projects, but it will be given once they are completed. For the 2019 floods, Kerala has been left out for some strange reasons,” Isaac said, adding, "We were allowed to borrow, but were deprived of additional borrowing.”

'Discrimination towards Kerala political'

According to the Finance Minister, the reason for discrimination towards the state is political as well as ideological, "because the country is now ruled by a party that does not believe in diversity but only in unity".

“Excluding Kerala even for flood relief could be partially political too because Kerala stands for secularism. There may be some animosity,” Issac said.    

The Kerala Finance Ministry is now planning to reach out to the Centre at the GST ministerial committee meeting, which will be held in New Delhi on January 18.  

"The GST compensation arrears would be around Rs 14,000 crore, if not more. Integrated Goods and Services (IGST) undistributed is more than Rs 1 lakh crore. Considering the financial situation of states, the Centre can make an advance payment from the IGST fund they have, and I hope there would be such a decision at the GST meet," he said.

The Minister also added that if the GST Council is not able to come up with a solution on dispute settlement, the state will move the Supreme Court.

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