Kerala is not in the “debt trap”; RBI article failed to study ground realities: FM Balagopal
Affirming that Kerala is not in a ‘debt trap’, Finance Minister KN Balagopal said on Sunday that an RBI article expressing concerns over the financial health of the state was written without studying the realities ground.
Criticizing the Reserve of India (RBI) article as well as the comprehensive approach of the central government, Balagopal, also a senior leader of the ruling Left Front, said Kerala was facing financial difficulties as any other Indian state and that these could be managed. only with the collective efforts of the Center and the States.
While the RBI editorial staff spoke of a mixed response after calling for remedial action in five states including Kerala, Balagopal said those who prepared the report failed to take into account the difficulties faced by his state in due to the outbreak of COVID-19 and Nipah and natural calamities like floods in 2018 and 2019.
“As far as Kerala is concerned, we are not in a debt trap… We are in financial difficulties like many other states,” the minister told PTI.
Balagopal said he expects this year to see remarkable improvement in the financial sector.
“This year we expect greater improvement. Our finances are not at a dangerous level. We are 100% confident that we can continue to grow,” the minister said, but clarified that to help states , the Center needs to change its approach.
Urging the union government to provide the states with their justifiable share of the revenue, Balagopal said the Center has yet to decide on their request to extend the GST compensation beyond June.
Referring to the RBI document which stated that Kerala, along with two other states, is expected to surpass the debt to GDP ratio of 35% by 2026-27, he pointed out that the central government’s debt to GDP ratio was well more than that.
Noting that borrowing has never pushed the state into a financial crisis, Balagopal said the state’s borrowing rate was 3.4% last year despite the borrowing limit set by the government. at 3.5% of the state’s gross domestic product, while the Center’s borrowing rate was 6.9% of GDP last year, which he said was much higher.
Balagopal said cutting government spending out of concern for fiscal prudence would not help revive the economy.
He alleged that instead of taxing the wealthiest people, the central government gave tax breaks to large corporations and that “such financial policies create great difficulties in the economy of the country and to repair these damages, he has been forced to reduce employment opportunities for millions of young people and introduce a contract system for them when recruiting into the armed forces.” Asked if the financial crisis was the reason for the change in the policy of recruiting young central government jobs like the armed forces new Agnipath program, he said these financial policies of the Center have led to protests in the country.
Balagopal, however, claimed that the civil service system in Kerala is very strong and that the left-wing government in the state, despite financial difficulties, is taking all necessary steps to ensure that a strong system is in place. place to serve the people.
Seeking to counter the assertion made in the RBI document, the minister said the government could control inflation in the state through a strong public distribution system and effective government intervention in the public market.
Citing the latest data, Balagopal said the consumer price index (CPI) rose from 5.1 in April to 4.82 in May, which he said is remarkable as the national average of CPI was 7.04.
He said the RBI team did not consider the state’s financial situation during the outbreak of COVID-19 and Nipah virus and two consecutive floods in 2018 and 2019 when preparing for the report.
“This is a financial situation of the COVID period. In fact, we have spent a lot on reconstruction, including two packages of Rs 20,000 crore each and a package of Rs 5,800 crore for the pharmaceutical business sector. .
All those expenses are there. And during the COVID-19 period, we were able to provide free food kits to every household. Such initiatives were undertaken at a time when there was a complete lockdown due to which the entire market was affected.
“Even before the outbreak of COVID-19, we had to deal with problems related to natural calamities and we spent a lot on rebuilding the state,” the minister added.
Echoing the words of his predecessor and senior CPI(M) official Thomas Isaac, the minister said providing a stimulus package to Kerala to invest in capital spending is the only way out to overcome the crisis.
Speaking to PTI earlier, Isaac had said: ‘The Center should provide a stimulus package to the state for capital spending, so that revenues grow.’
Balagopal said that the states would be able to overcome the stress through the collective efforts of the Center and the state governments and expressed the hope that the union government would take steps in this direction.
The RBI article prepared by a team of economists under Deputy Governor Michael Debabrata Patra said state finances are vulnerable to a variety of unexpected shocks that could alter their fiscal outcomes, causing slippages by to their budgets and expectations.
“The recent economic crisis in neighboring Sri Lanka is a reminder of the critical importance of public debt sustainability. Indian state fiscal conditions are showing early signs of growing stress,” he said.
For some states, he added, shocks can significantly increase their debt, raising fiscal sustainability issues.
For the five most indebted states of Bihar, Kerala, Punjab, Rajasthan and West Bengal, the stock of debt is no longer sustainable as debt growth has outpaced their gross domestic product growth (GSDP) over the past five years, he warned. .
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