Thiruvananthapuram: Kerala will borrow Rs 6,100 crore from the open market in January after the Union Government restored the state’s borrowing limit. The Treasury restrictions which were put in place due to severe financial crunch, will be eased in the second week of the month.

Even if the state receives the money, it will not be enough to meet all the expenditure towards the end of the financial year, Finance Minister Thomas Isaac said. The spending needs to be strictly controlled, he added.

However, the social welfare schemes, disbursal of salary, service pension and other welfare pensions will not be affected by the spending cuts. But some of the development projects have to be postponed to next financial year, Thomas Isaac said.

The central government had permitted the state to borrow upto Rs 20,000 crore from the open market this financial year. A sum amounting to Rs 13,000 crore has been parked in various savings accounts of the Treasury by different departments in the past years.

However, this Rs 13,000 is just in records. There is no money in the Treasury accounts. Due to this huge deposits in Treasury, the Centre capped the borrowing limit at Rs 14,000 crore. The Centre determines the borrowing limit on the basis of funds parked in the Treasury accounts of various departments.

To overcome this technical hurdle, the state government recently did some book-keeping by slicing off Rs 6,000 crore from Treasury Savings Bank. After this, the Centre restored the limit for open market borrowing.

The state will borrow from open market through debentures having maturity limit of 10 years at 8-9 percent interest. 

With the Treasury restrictions lifted, the contractors will receive their money by way of bill discounting method. However, for clearing bills above Rs 25 lakh, the special sanction of the Finance Department is still required.

Thomas Isaac said that the economic stagnation is acute in the state. The expenditure was affected due to increase in the number of NRI returnees. Market sales fell and the growth in tax revenue is slowing down.

The budget was prepared expecting a 25 percent growth in GST revenue. However, there will be only 14 percent growth in tax revenue even after adding the compensation from the Centre. This is the main reason for the financial crisis, Thomas Isaac said.   

He said the Centre’s intervention in open market borrowing is a lesson for Kerala that financial disciple must be observed strictly going forward. The state government will stop the practice of taking temporary loan through Treasury for development projects. The fiscal deficit will be maintained at 3 percent, the Finance Minister added.