The Kerala government on Saturday told the Centre that the state was under severe fiscal pressure due to mid-year GST rationalisation, reciprocal tariff measures by the US and declining share in the divisible pool, and sought a special package from the Union government.
State Finance Minister K N Balagopal, in a pre-Union Budget proposal, said that these "overlapping economic shocks", which included shrinking central assistance under Centrally Sponsored Schemes (CSS) and unanticipated cuts in its borrowing limit, were weakening Kerala’s revenue base, growth outlook and fiscal sustainability.
He pointed out that thousands of crores of losses caused by these pressures were affecting the state's ability to fund essential services, welfare programmes, and infrastructure projects, and requested a special fiscal correction package "to rectify a severe resource gap of over Rs 21,000 crore arising from the current year's borrowing constraints".
"This shortfall is a direct result of about Rs 17,000 crore cut in the borrowing limit, compounded by a loss of Rs 4,250 crore due to Gross State Domestic Product (GSDP) estimation methodologies that deviate from the accepted recommendations of the 15th Finance Commission," the minister said.
In his pre-Budget proposal document, the minister said that borrowing restrictions imposed by the Centre were causing a severe financial crisis in the state.
He requested that an additional borrowing space of 0.5 per cent of GSDP be provided exclusively for capital expenditure, "to accelerate infrastructure development without crowding out welfare spending".
"It is also requested that at least 25 per cent of the Union’s 50-year interest-free capex loans to states may be earmarked as an Asset Renewal Fund, to address ageing infrastructure in developed states such as Kerala," Balagopal said.
Regarding the revenue loss caused by the recent overhaul of the Goods and Services Tax (GST) system, the minister proposed implementing a revenue protection framework to prevent state-wise revenue shocks during rate rationalisation and provide a rule-based compensation through the Compensation Cess to adversely affected states.
He also urged the Centre to restore the earlier rural employment guarantee framework as under the new VB–G RAM G scheme, Kerala will have to bear 40 per cent of the initiative's total costs which would result in an additional burden of thousands of crores in the years to come.
"It is strongly felt that the implementation of the scheme in its present manner will result in the cessation of its original purpose of guaranteeing employment in rural areas, adversely affecting the livelihood of millions," he said.
The VB–G RAM G scheme replaced the earlier MGNREGA rural employment initiative.
Balagopal also requested that central assistance under CSS be increased from 60 per cent to 75 per cent.
His proposals also contained recommendations to leverage the strong potential of Vizhinjam seaport to emerge as a national import-export gateway.
The suggestions included establishing rail connectivity, a port-based industrial corridor, a green hydrogen hub and a seafood park. Besides these, he sought financial packages of thousands of crores for paddy procurement reforms and boosting the plantation sector, especially rubber, in the state.
"At present the government of Kerala is giving a support price of Rs 200 per kg. This has to be increased to Rs 250 for which the entire additional cost may be met by the government of India," he said.
Additionally, he also raised the state government's long term demands like establishing an AIIMS in Kerala, early completion of the Sabari Rail and state-specific rescue packages for traditional small-scale industries like cashew, coir and handloom.
Balagopal also highlighted the issue of increased human-animal conflicts in the state which was resulting in a rise in fatalities and crop damage which was in-turn affecting lives and livelihood and sought a dedicated allocation of Rs 1,000 crore for addressing them.
He also requested for a dedicated budgetary allocation from the Union government to address the demand for expanded healthcare, specialised hospitalisation, social support systems and essential welfare schemes in view of the increase in its elderly population.
"I hope that the forthcoming Union Budget will consider these suggestions and long pending demands of Kerala. The 16th Finance Commission Report is expected to be presented in the Parliament along with the Union Budget.
"The state has high expectations that the requirements of states like Kerala in resource allocation will be duly addressed," Balagopal said.
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