Kerala is not in a debt trap, assures finance minister

Kerala finance minister K N Balagopal said on Sunday that the state is not in a debt trap. Responding to an RBI article that expressed concern about Kerala's financial health, he said it was done without studying the ground realities.

He added that the state has difficulties like any other Indian state but those can be dealt with through the collective efforts of the Centre and Kerala. He noted that the Centre needs to change its approach in order to help states.

The senior LDF leader crticised the RBI article as well as the Centre for their outlook on Kerala's financial situation. He observed that the RBI did not take into account the difficulties Kerala faced due to Covid-19 and Nipah outbreaks as well as the floods in 2018 and 2019.

The finance minister said Kerala is expecting a remarkable improvement in the financial sector. He asserted that the state's finances are not at a dangerous level and the government is 100% sure that the state can proceed with growth.

The minister said the Centre needs to provide the states their justifiable share of the revenue and pointed out that the union government has not yet decided on Kerala's demand for extending the GST compensation beyond June.

The RBI article had called for corrective steps in five states including Kerala. It said Kerala is projected to exceed the debt-GSDP ratio of 35% by 2026-27.

Balagopal responded to the RBI's concern by saying the Centre has a much higher debt-GDP rate. "Kerala's borrowing rate was 3.4% last year despite the borrowing limit fixed by the central government being 3.5% of the Gross State Domestic Product. The Centre's borrowing rate was 6.9% of the GDP last year."

He added that borrowing has never pushed Kerala into a financial crisis. "Curtailing government expenditure for the sake of financial prudence will not help revive the economy". He claimed the civil service system in Kerala is very strong and the state government is taking every step to ensure that a robust system is in place for serving people despite financial difficulties.

He also criticised the tax system and said the Centre was providing tax relief for big corporations instead of taxing the richest people.

"Such financial policies create big difficulties in the country's economy. To repair that damage, the Centre was forced to squeeze the employment opportunities for millions of youth and introduce a contract system for them in recruitment to the armed forces".

He called for the Centre to implement a public distribution system to control inflation.