Kerala govt moves SC over Centre's interference in the state's finances

The Kerala government on Wednesday moved the Supreme Court (SC) against the Centre's interference in the state's finances. It said that such interference hampers the state's ability to fulfil commitments in its annual budgets.

The state government, in a suit, stated that "it deals with the executive power conferred on the plaintiff state under Article 293 of the Constitution of India to borrow on the security or guarantee of the consolidated fund of the state in alignment with the fiscal autonomy of the plaintiff state as guaranteed and enshrined in the Constitution".

The Kerala government said that the Centre, through the Ministry of Finance, the Department of Expenditure letters dated March 2023 and August 2023, and amendments made to Section 4 of the Fiscal Responsibility and Budget Management Act, 2003, sought to interfere with the finances of the state by imposing a net borrowing ceiling on the state.

It further said, "Such interference with the finances of the state by imposing a net borrowing ceiling on the plaintiff state in the manner deemed fit by the defendant Union, which limits borrowings from all sources, including open market borrowings."

The plea stated: "Unless the net borrowing ceiling, as fixed by the Kerala Fiscal Responsibility Act,2003, based on which the Budget of the plaintiff state has been drawn up and approved by the Legislature is restored, the plaintiff state is legitimately apprehensive that its treasury operations will be halted or starkly curtailed. This is a dire situation looming ahead, the immediate consequences to the plaintiff state will be catastrophic."

On the challenge to the amendment made in 2018, the Kerala government said that it fears that the same will be used to legitimise and legalise the executive actions taken through letters or orders.

"The defendant does not have the constitutional right or authority to issue directives to the state government under Article 293 of the Constitution which have the potential to damage the federal structure by transgressing upon the exclusive financial domains of the State," the plea read.

The Kerala government suffered a cumulative expenditure loss or resource deficiency of Rs 1.07 trillion over FY 2016-23 due to such actions of the Central government. Due to this, the state said that it was unable to fulfil the commitment made in its annual budgets.

The plea read: "This has resulted in huge arrears that the plaintiff state owes by way of welfare schemes to the people of the State particularly the poor and the vulnerable, various beneficiary groups, the employees of the state government, its pensioners and dues to its State-owned enterprises."

Kerala is the second state this year to move the top court in relation to a financial dispute with the Centre. Earlier, the Punjab government filed a suit against the central government over the non-reimbursement of statutory fees of Rs 4,000 crore that the state government had levied on behalf of the central government during the procurement of food grains.

(With inputs from agencies)