Kerala Finance Minister K N Balagopal on Thursday said the Centre's imposition of cuts in the borrowing limit of the states would adversely impact the southern state's economy, which is yet to completely recover from the challenges due to the COVID-19 pandemic and back-to-back natural disasters.

The BJP-led union government adopted a "wrong policy" to reduce the state's borrowing capacity after including the loans taken by the special purpose vehicles like Kerala Infrastructure Investment Fund Board and Kerala Social Security Pension Limited within the state government's overall borrowing limit, he told the state Assembly.

"The cutting down of the borrowing capacity of states to three per cent from the previous five per cent will adversely impact the state's economy," Balagopal said during Question Hour.

Despite repeated requests to restore the previous borrowing limit of the states and to avoid the inclusion of the loans taken by the KIIFB and KSSPL in the state's overall borrowing, the union government had not taken any favourable step, he said.

Chief Minister Pinarayi Vijayan had sent a letter to Prime Minister Narendra Modi with the state's request in this regard, he said. Balagopal also said he himself sent a letter to Union Finance Minister Nirmala Sitharaman but the Centre has made no change in their stand so far.

Noting that the state budget is prepared based on the borrowing limit being fixed by the Finance Commission, the Minister said loans taken in this manner are mainly used for infrastructure development.

Imposing cuts in the borrowing limit of the state after the Assembly passed the budget would derail the infrastructure development of the state and cause delay in the completion of the ongoing projects, he explained.

Besides availing loans, the state government is making all efforts to find funds for the development projects by increasing tax and non-tax revenue, reducing unwanted expenses and mobilising maximum resources, the finance minister added.

Except for the headline, this story has not been edited by The Telegraph Online staff and has been published from a syndicated feed.