The Kerala government on Tuesday urged the Union Finance Ministry to reverse a ₹3,323-crore cut in its market borrowing limit.

The government informed the Centre that it had taken steps to establish a Guarantee Redemption Fund (GRF) — a new requirement under the Union government’s borrowing rules for States.

After submitting a memorandum to Union Finance Minister Nirmala Sitharaman in New Delhi, Finance Minister K.N. Balagopal said the State had begun the process of constituting the GRF and would start contributing to it within the current financial year.

Under revised guidelines issued by the Department of Expenditure for 2025–26, States must set aside either 0.25% of their Gross State Domestic Product (GSDP) or 5% of their outstanding guarantees — whichever is higher — in a GRF. If they fail to do so, the shortfall is deducted from their annual borrowing limit.

For Kerala, this has resulted in a reduction of ₹3,323 crore from its approved borrowing ceiling for the first three quarters of the fiscal year. This deduction be reversed once the State formally notifies the GRF, Mr. Balagopal said.

“The government is in the process of establishing the fund. Contributions will begin this year,” he assured in the memorandum, calling the move essential to “safeguard the financial stability and development trajectory of the State.” Kerala, a revenue-deficit State with high public welfare spending, has faced growing pressure on its finances.

The borrowing limit — or net borrowing ceiling — is a critical tool for the State to raise funds through open market operations and meet development needs, Mr. Balagopal said.

In addition to the GRF issue, the State has also sought the Centre’s reconsideration on an earlier ₹1,877.57-crore deduction.

This amount was permitted as additional borrowing in 2023-24 due to changes in GSDP estimates but was later adjusted against the 2024–25 borrowing limit — even though final GSDP figures for that year have not been released.

Mr. Balagopal has requested that the adjustment be shifted to 2025–26 in light of more recent, upward GSDP revisions for 2022–23 and 2023–24.

The Finance Minister called for “kind and expeditious intervention” from the Union government to address these matters and help ensure the State’s fiscal balance.