Kerala’s financial crisis raise alarms for the central government, triggering a close examination of the state’s economic management.
The Central government thinks Kerala is one of the financially struggling states in the country. They believe Kerala’s economy has some big problems. This idea comes up because there is a legal fight between Kerala and the central government. The central government is closely looking at how Kerala handles its money and manages its finances.
The matter is mainly about Kerala asking the Supreme Court if it can borrow more money. The central government doesn’t like this idea. They say Kerala is trying to cover up its money problems instead of using the extra money for useful things. Documents seen by The Times of India show that the central government is worried about Kerala’s growing financial issues and says it’s because of how the state is being managed.
The contention is the state’s outstanding liabilities, which have seen a marked increase from 31% of its Gross State Domestic Product (GSDP) in the fiscal year 2018-19 to 39% in 2021-22. This trajectory starkly contrasts with the average liability ratio of 29.8% observed across other Indian states during the same period. The Centre has highlighted the perilous path Kerala is on, noting,
“One of the major consequences of having a high outstanding liability ratio is enhanced outflow in terms of interest payments, which increases the state’s deficit and may result in a debt trap.”
Further exacerbating the fiscal woes is Kerala’s committed expenditure, which has surged from 74% of its revenue receipts in 2018-19 to 82.40% in 2021-22, the highest among all states. This surge in committed expenditure limits the government’s ability to allocate funds for growth-inducing projects.
“High levels of committed expenditure squeeze out the space for productive government spending, which negatively impacts the state’s growth in the long run,”
the Centre’s statement elucidated.
The Union government expresses concern about Kerala’s financial practices. They are critical of the state’s increasing revenue deficit, pointing out a worrisome trend. Kerala is borrowing money not for productive investments but to meet everyday expenses, including salaries, pensions, and interest payments. According to the central government, this pattern suggests more profound financial mismanagement issues in Kerala, beyond just facing regular fiscal challenges.
In this situation, the tension between Kerala and the central government increased when the state took the matter to the Supreme Court, questioning the government’s decision to limit how much money it can borrow. Kerala has requested a review by the court at a crucial time, just before presenting the state budget for the fiscal year 2024-25 in the legislative assembly on February 5.
The central government, in its defense, highlights that despite Kerala facing financial challenges, it has received more financial assistance from the federal government than what the Finance Commission suggested. The government emphasizes that this support was given without any conditions. This illustrates the central government’s dedication to aiding state economies, although it simultaneously advocates for improved fiscal discipline and management.
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Kerala’s financial problems and legal fight show the struggle between the state doing its own thing and the central government keeping an eye. It’s a big deal for how money is managed and stability in different areas.
