Why is Kerala Falling Into an ECONOMIC crisis? Why did Supreme Court intervene? Explained in Detail
Think School・2 minutes read
Kerala faces financial crisis with significant losses, delays in salaries, and social security scheme hold, leading to borrowing funds and seeking assistance from the Union Finance Minister. The economic downfall is attributed to overspending on short-term expenses, inefficient tax collection, reduced share from divisible pool, and off-budget borrowings, highlighting the importance of monitoring economic indicators to prevent future crises.
Insights
- Kerala is facing a severe financial crisis, resulting in a loss of over 1 lakh 110,000 crores, leading to delays in paying salaries to 3.5 LH government employees and putting social security schemes for 55 lakh people on hold.
- The economic downfall in Kerala is primarily due to overspending on short-term expenses rather than long-term investments, exacerbated by inefficient tax collection post-GST implementation and a decrease in Kerala's share from the divisible pool of taxes, leading to increased borrowing and financial constraints.
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Recent questions
Why is Kerala facing a financial crisis?
Overspending on short-term expenses and inefficient tax collection.
How has Kerala government responded to the financial crisis?
Borrowed funds, delayed salaries, and sought assistance.
What impact has the financial crisis had on Kerala's borrowing limits?
Exceeded borrowing limits, requiring additional funds.
How has the relationship between Kerala government and the center been affected by the financial crisis?
Tussle over financial crisis, accusations from both sides.
What measures has Kerala taken to address the financial crisis?
Requested assistance, borrowed funds, and delayed salaries.
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Summary
00:00
Kerala Struggles with Financial Crisis and Debt
- Kerala is facing a financial crisis, with a loss of 1 lakh 110,000 crores and struggles to pay salaries.
- Kerala government has borrowed funds to cover expenses, leading to delays in salaries for 3.5 LH government employees.
- Social Security schemes for 55 lakh people in Kerala are on hold due to financial constraints.
- Kerala Finance Minister K Balagopal has written to Union Finance Minister Nirmala Sitharaman seeking assistance.
- Kerala's net borrowing ceiling for 2023-24 is 32,44 cror, but the state has exceeded borrowing limits, requiring an additional 15,000 crores.
- Tussle between Kerala government and the center over financial crisis, with accusations and blame from both sides.
- Kerala's economic downfall attributed to overspending on short-term expenses rather than long-term investments.
- Kerala's inefficient tax collection post-GST implementation led to a decline in revenue, forcing the state to take on more debt.
- Kerala's share from the divisible pool of taxes has decreased, impacting the state's financial resources.
- Kerala argues that changes in the 15th Finance Commission's criteria for revenue distribution have disadvantaged the state, leading to a shortage of funds.
14:07
Kerala's Off-Budget Borrowings Pose Financial Risks
- Off-budget borrowings are a method used by states like Kerala to borrow funds beyond the specified limit, with Kerala having one of the highest off-budget borrowings in the country, leading to potential financial risks.
- The Center's decision in March 2022 to include both state borrowings and off-budget borrowings in the state's account as debt has put states like Kerala in a difficult position, highlighting the importance of monitoring economic indicators and avoiding overspending to prevent future financial crises.
