Home Borrower Center flags off-budget state government arms borrowing

Center flags off-budget state government arms borrowing


The Centre’s late approval of Kerala’s proposal to raise Rs 5,000 crore in the market has reignited controversy over accounting for off-budget borrowing by public sector enterprises, corporations and special purpose vehicles under the state government.

He had not liked these borrowings from the Kerala Infrastructure Investment Fund Board (KIIFB), which was set up by the state government as an incorporated financial institution to raise funds for infrastructure development outside from the budget.

Net borrowing limit

The Expenditure Department of the Ministry of Finance has observed that off-budget government borrowing has the effect of circumventing the net borrowing ceiling by channeling loans through state-owned enterprises/statutory bodies despite being responsible for repaying these loans.

“These borrowings have an impact on the revenue gap and the budget deficit and therefore have the effect of exceeding the targets set for the fiscal indicators under the state FRBM law,” the finance ministry said in a statement. recent report. The CAG also directed the state government to include off-budget borrowing in the budget and accounts. The growing tendency to resort to off-budget avenues could lead the state into a debt trap, he noted.

Delays approval to borrow

The cash-strapped state protested the “undue delay” in granting permission to borrow from the market, even in the second month of the first quarter of 2022-23. But the Center has stuck to its position that off-budget borrowing from the state’s public sector weapons should be counted against the state’s borrowing limit.

Call for guarantees

State Assembly documents show that the KIIFB has cleared 962 projects worth ₹70,762.05 crore till March this year. Jose Sebastian, a public finance expert, says the Center is absolutely right to include all debts in the state’s public debt. “This is so because reimbursement is off-budget income. And if the guarantees are invoked, the State will have to honor them from its budgetary resources,” he explained to Activity area.

The argument that the Center itself resorted to off-budget borrowing that is not included in its budget is also not entirely correct, Sebastian said. “The Center controls vast resources and can print money or borrow from abroad. It too is bound by the same FRBM law and should include these funds in its debt. The fact that it did not do so does not justify the State making the error.

Published on

May 16, 2022