Kerala seeks restoration of slashed crores from borrowing limit, submits memorandum to Centre

The State government has once again urged the Centre to restore several thousands of crores of rupees allegedly slashed from its borrowing limit, including ₹5,944 crore deducted from the limit for the last quarter of 2025-26, pointing out that the State is facing “serious fiscal challenges” arising from multiple shocks to State revenues and constraints on borrowing capacity.

Kerala has sought, among other things, the restoration of ₹5,944 crore deducted from the borrowing limit reportedly citing off-Budget borrowings by special purpose vehicles (SPV), ₹965.16 crore cut in April 2025 to make up for a shortfall in the Integrated Goods and Services Tax (IGST) balance, and ₹3,323 crore cut in connection with the Guarantee Redemption Fund (GRF).

The total amount that the State seeks to be restored comes to a little over ₹22,350 crore under various components.

Finance Minister K.N. Balagopal placed the request before the Centre during a meeting with Union Finance Minister Nirmala Sitharaman in New Delhi on Wednesday.

Fiscal stress

Although Kerala is entitled to ₹12,516 crore as its borrowing limit in the last quarter of 2025-26, the Centre had given consent only for ₹5,636 crore. The “magnitude and timing” of the deduction of ₹5,944 crore have caused severe fiscal stress to the State, Kerala has informed the Centre. This amount was reportedly deducted on account of the off-Budget borrowings by the SPVs Kerala Infrastructure Investment Fund Board and the Kerala Social Security Pension Ltd.

“Acute cash flow constraints” presently faced by the State includes timely payments of salaries and pensions, welfare and social security measures and the funding of infrastructure works, according to the memorandum. “Such a sharp reduction in borrowing headroom at this critical stage would inevitably disrupt public service delivery and adversely impact the State’s economy,” Kerala has informed the Centre.

Further, the State has also reiterated certain demands that it had raised earlier too. This includes a request that it be allowed an additional borrowing of ₹6,000 crore over the net borrowing ceiling for bearing 25% of the land acquisition cost of the development of National Highways.

Kerala has observed that ₹14,358 crore has already been deducted from the State’s Gross Borrowing Limit in 2025-26 on account of off-Budget borrowings, non-investment in the GRF and Public Accounts Accrual.