The Kerala government has encountered a significant financial hurdle following the Union Finance Ministry's decision to slash the state's borrowing limit by ₹3,300 crore. This reduction brings the permissible borrowing for the fiscal year up to December to ₹29,529 crore, down from the initially anticipated ₹32,829 crore.

The Centre attributed this cut to Kerala's failure to establish a redemption fund for state-guaranteed loans, a requirement under fiscal responsibility norms. The state was expected to deposit ₹600 crore into this fund to maintain its borrowing capacity.

This development poses challenges for Kerala, especially as it approaches the final year of its current administration, with several developmental projects underway. The state had previously received approval to borrow ₹21,251 crore until December of the last fiscal year.

Kerala's Finance Minister, K.N. Balagopal, has expressed concerns over the Centre's decision, highlighting the state's reliance on borrowing to fund essential expenditures. The reduction is expected to impact various welfare schemes and infrastructure projects planned for the year.

The state's financial strategy has also included borrowing through institutions like the Kerala Infrastructure Investment Fund Board (KIIFB). However, such borrowings are now being considered within the state's overall borrowing limits, further constraining its fiscal flexibility.

As Kerala navigates this fiscal tightening, the state government is exploring alternative measures to manage its finances without compromising on development goals. The situation underscores the ongoing tensions between state fiscal autonomy and central oversight in India's federal structure.