Onam expenses squeeze Kerala: Another ₹2,200 crore borrowing takes total to ₹14,400 crore

Thiruvananthapuram: Kerala is set to borrow an additional ₹2,200 crore through a bond auction to meet expenses during the Onam season, taking the state's total borrowing since the UDF government came to power to ₹14,400 crore.

The Kerala government will raise an additional ₹2,200 crore through a bond auction on Tuesday as it prepares to meet the higher expenditure associated with the Onam season.

The state's Onam-related expenditure is estimated at around ₹10,000 crore. This includes salaries, pensions, welfare pensions, bonuses and festival allowances.

The latest borrowing will take the total amount borrowed since the UDF government assumed office to ₹14,400 crore.

Centre unlikely to increase borrowing limit

The Kerala government had requested the Centre to increase its borrowing limit to help manage the state's financial requirements. However, the request is unlikely to be approved, according to the report.

The additional borrowing comes as the state faces pressure to meet its expenditure commitments during the festival season.

Treasury deposits offer higher interest

Alongside borrowing, the Kerala Treasury has launched a special deposit mobilisation drive from Saturday until September 30.

Under the scheme, deposits of two years or more will receive higher interest rates. New deposits will earn 7.75% for the general public and 8% for senior citizens. Institutional deposits will receive 7.65%.

The existing rates are 7.5% for the general public and senior citizens, while institutional deposits currently earn 7.5%.

Deposits made after September 30 will revert to the existing interest rates.

Why treasury deposits are only a temporary measure

The special deposit drive can provide the state with additional liquidity in the short term, but it does not permanently ease Kerala's borrowing constraints.

The Centre treats additional treasury deposits mobilised during a year as part of the state's debt and adjusts the following year's borrowing limit by an equivalent amount.

This means the additional funds raised through treasury deposits provide temporary financial support but can reduce the state's borrowing space in the subsequent year.

Onam is one of Kerala's biggest annual spending periods for the government, with large payments required for salaries, pensions, welfare pensions and festival-related benefits.

The decision to borrow another ₹2,200 crore highlights the pressure on the state's finances as it seeks to meet these commitments while operating within borrowing restrictions.

The combination of bond borrowing and higher-interest treasury deposits shows the government using both market borrowing and internal resource mobilisation to manage its immediate cash requirements.