Kerala Urges Centre To Permit Rs 7,900 Crore Additional Borrowing In FY26

Kerala on Monday urged the Centre to allow the state to borrow an additional Rs 7,900 crore as well as restore around Rs 4,300 crore that has been deducted in relation to certain adjustments.

The state, which saw its debt-GSDP ratio decline to 34.13% in 2024-25 from 38.47% in 2020-21, has sought the amounts citing the significant impact of the deductions on its fiscal health and its ability to meet essential expenditures especially in view of huge cash outflow in connection with the upcoming Onam festival.

Kerala Finance Minister K N Balagopal on Monday submitted a memorandum to Union Finance Minister Nirmala Sitharaman, listing out the immediate needs, and highlighted that the state faces challenges in meeting its expenditure commitments due to shrinking fiscal space.

Additional borrowing of Rs 7,877.57 crore and restoration of deducted amounts worth Rs 4,288.16 crore have been sought.

According to Balagopal, Kerala is the only state which has borne 25% of the land acquisition cost of national highway widening and the amount was raised through state government borrowing.

While mentioning that the amount was deducted from the state's annual borrowing limit, he urged Sitharaman to consider the same as an additional capital expenditure for the national highways.

"We request to allow the state to borrow Rs 6,000 crore in the current financial year without any conditions, over and above the Net Borrowing Ceiling fixed by the Government of India for 2025-26," the memorandum said.

Further, Balagopal has sought permission for raising Rs 1,877.57 crore through Open Market Borrowing and cited the amount pertained to variation in the GSDP.

Among other demands, the state has requested the Union government to urgently restore Rs 3,323 crore which was deducted in connection with non-contribution to the Guarantee Redemption Fund.

States are required to make contributions to the GRF which is also a parameter for determining states' borrowing ceilings. As per the memorandum, Rs 965.16 crore was deducted in April 2025 on account of the adjustment of Advance Apportionment to make up for a shortfall in the IGST balance as on March 31, 2025.

"This deduction has adversely affected the resource position of the State. Therefore, it is requested that the reduced amount of IGST may be restored to the State in the current financial year," it added.