Kerala Alleges Centre Imposing Financial Sanctions

The Kerala government has again flagged the Centre’s fiscal “double standards”, including the state’s pending grants, borrowing limits and the reduction in fund allocation for states.

Finance minister KN Balagopal has accused the Union finance ministry of denying the state its due even during Onam. He also alleged that UDF MPs didn’t meet him despite attending the meeting convened by the chief minister after LDF MPs submitted a charter of demands to him. 

Apart from the loss of revenue of about Rs 28,000 crore due to the discontinuation of revenue deficit grant, GST compensation and reduction in borrowing limits, Balagopal claimed that the Centre owes around Rs 3,680 crore to Kerala. 

FISCAL FEDERALISM UNDER ‘ATTACK’

Despite several setbacks in the last five years, including two successive years of devastating floods, Nipah outbreak and COVID-19, Kerala has managed its finances well. As per the 15th Finance Commission report, around 62.7% of the country’s receipts are held by the Centre whereas state governments bear 62.4% of the expenditure obligations. 

Kerala is also mobilising its funds for expenditure and its share of expenditure is increasing. While in 2020-21, 56% of the total revenue receipts was from its resources, the share increased to 59% in 2021-22 and 66% in 2022-23. The government expects the share to reach71% in this fiscal. 

The LDF MPs also flagged the increasing share of the state government and the decreasing share of the Centre in the centrally sponsored schemes. 

During a press conference on Friday, Balagopal said, “The Centre is trying to impose financial sanctions by reducing tax shares and limiting borrowing limits. Despite several financial constraints, the LDF government has spent around Rs 19,000 crore during the Onam season.” 

He also accused the 18 UDF MPs in the Lok Sabha, including Rahul Gandhi, of joining the BJP’s ploy of limiting the state’s financial capacity. 

“Not even one UDF MP signed the memorandum submitted to the Union finance minister. The memorandum had only financial matters. The UDF MPs are also cheating the state’s people,” he further alleged. 

The LDF government has also accused the Centre of inordinately delaying the disbursal of pending dues. Restrictions, including the slashing of borrowing limits, are affecting the state’s developmental activities in various sectors like public health and education. 

Though the state has achieved a 50% growth in revenue collection in 2022-23 compared to 2020-21, the revenue gap is increasing due to reduced resources from the Centre through the comprehensive restriction of GST.

Welfare pensions, including Indira Gandhi National Widow Pension, Disability Pension and Old Age Pension; source: Memorandum submitted to the Union finance minister.

The state has urged the Centre to raise the borrowing limit by, at least, 1% for the 2023-24 fiscal on ad hoc basis and ensure special assistance considering the cessation of revenue deficit grant and reduced share of tax in the Finance Commission devolution. 

As per the 15th Finance Commission, Kerala’s share is just 1,92%, down from 2.5% and 3.875% in the 14th and 13th commissions respectively.