Net borrowing ceiling: Kerala moves SC alleging interference by Centre

The Kerala government has approached the Supreme Court accusing the Centre of interfering in exercise of its "exclusive, autonomous and plenary powers" to regulate the state's finances by imposing a ceiling on net borrowing.

In an original suit filed under Article 131 of the Constitution, the Kerala government has said the Constitution bestows fiscal autonomy upon states to regulate their finances under various articles, and the borrowing limits or the extent of such borrowings are regulated by a state legislation.

Article 131 of the Constitution deals with original jurisdiction of the apex court in any dispute between the Centre and states.

The suit referred to the letters dated March 27 and August 11, 2023 issued by the Centre, through the Ministry of Finance (Public Finance-State Division), Department of Expenditure, and the amendments made to section 4 of the Fiscal Responsibility and Budget Management Act, 2003.

It alleged that the Centre "seeks to interfere with the finances of the state by (i) 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".

It also gave the figure of dues as on October 31 this year which had accumulated over the years because of the financial constraints stemming from the ceiling imposed by the Centre on borrowing.

"The plaintiff state submits that the said amount of Rs 26,226 crores is imminently and urgently required in order for the plaintiff state to avert the impending grave financial crisis that has been caused by the impugned orders," the suit, filed through advocate C K Sasi, said.

It said the suit "squarely raises a dispute as to the right, power and authority of the defendant Union (of India) to interfere with the exclusive, autonomous and plenary powers of the plaintiff state to regulate its own finances under several provisions of the Constitution". The suit claimed the Centre's actions "fall foul of, and violate the federal structure of the Constitution".

It said the borrowing limits or the extent of such borrowings are regulated by the Kerala Fiscal Responsibility Act, 2003 as amended from time to time.

"The primary objective of the state legislation is to bring about fiscal consolidation, which involves reducing fiscal deficits and controlling public debt to maintain macroeconomic stability and sustainable economic growth," it said.

The suit said the ability to determine the borrowing of the state in order to balance the budget and make up for the fiscal deficit is exclusively within the domain of the states.

"If the state is not able to borrow to the extent required based on the budget of the state, the state would not be able to complete its state plans for the particular financial year," it said.

The suit said it is essential for the progress, prosperity and development of the state and the people there that the state is able to exercise its constitutional rights and its borrowings are not impeded in any manner.

"The defendant through the impugned amendments has encroached into the legislative domain of the plaintiff state as 'Public Debt of the State' is an item exclusively in the State List in the Seventh Schedule under Article 246 of the Constitution," the suit said.