Delays approval to Kerala’s bid to approach market in first quarter
The Centre’s delayed approval to Kerala’s proposal to raise Rs 5,000 crore from the market has rekindled the controversy over accounting of off-budget borrowing by public sector undertakings, corporations and special purpose vehicles under the State government.
It had not taken kindly to such borrowings by the Kerala Infrastructure Investment Fund Board (KIIFB), which was set up by the State government as a body corporate financial institution to mobilise funds for infrastructure development from outside the budget.
Net borrowing ceiling
The Department of Expenditure, Ministry of Finance, has observed that off-budget borrowings by states have the effect of bypassing the net borrowing ceiling by routing loans through government-owned companies/ statutory bodies despite being responsible for repayment of such loans.
“Such borrowings have an impact on the revenue deficit and fiscal deficit and thus have the effect of surpassing the targets set for fiscal indicators under the State FRBM Act,” the Finance Department said in a recent report. The CAG also directed the state government to include off-budget borrowings in the budget and accounts. The growing trend of resorting to off-budget routes could lead the state into a debt trap, it had noted.
Delays approval to borrow
The cash-crunched state has been protesting the ‘undue delay’ in the grant of approval to borrow from the market even into the second month of the first quarter of 2022-23. But the Centre has stuck to its stand that off-budget borrowings by State public sector arms be accounted in the state’s borrowing limit.
Invoking of guarantees
State Assembly documents show that KIIFB has cleared 962 projects worth ₹70,762.05 crore till March this year. Jose Sebastian, a public finance expert, says the Centre is perfectly correct in including all debts as part of State government debt. “This is so because the repayment is out-of-budget revenue. And if the guarantees are invoked, the state will have to honour it out of its budget resources,” he explained to BusinessLine.
The argument that the Centre has itself resorted to off-budget borrowings that are not included under its budget is not entirely correct either, Sebastian said. “The Centre has command over vast resources and can print money or borrow from abroad. It, too, is bound by the same FRBM Act and should include such funds under its debt. The fact that it has not done so is no justification for the state to commit the error.”