Finance Ministry makes one time offer of ₹5000 crore as additional borrowing to Kerala but conditions apply

Also, Centre’s consent to the first nine months of borrowing by Kerala will be issued on a quarterly basis , meaning every three months against the current practice of a one shot nod for nine months of borrowing by any state.

Kerala will also need to submit a Plan-B for raising financial resources that it announced in its FY25 budget. The state needs to put this plan in action before seeking the Centre’s nod for FY25 fourth quarter borrowing, sources said.

Kerala had been seeking the Centre’s consent for borrowing ₹15,000 crore in advance in March 2024 against its FY25 borrowing limit, which the Centre refused on grounds of fiscal prudence. Following this, Kerala appealed to the Supreme Court but the plea was rejected by the apex court on March 13. However, the top court requested the Centre to re-examine the case and thereafter, the Centre made the conditional offer to Kerala, which is essentially based on state adhering to some fiscal discipline.

Sources explain that had the Centre agreed to Kerala’s plea for a ₹15,000 crore advance borrowing window, its borrowing limit for the next fiscal would have been severely squeezed, leaving the state in a worse fiscal situation than what it currently is.

For instance, the first nine months of Kerala’s FY25 entitled borrowing works out to ₹21,664 crore. A ₹15,000 crore advance against this would have curtailed Kerala’s borrowing to ₹6664 crore in which it would have to manage nine months of expenditure, translating into a fiscal headroom of just ₹740 crore a month.