SC reserves order on Kerala government plea seeking interim relief over financial issues

NEW DELHI: The Supreme Court on Friday reserved the order on a Kerala government plea seeking interim relief in a suit by Kerala against Centre alleging the union government is interfering with its borrowing powers.

A bench of justices Surya Kant and K V Viswanathan reserved the order on the issue of interim relief.

The Kerala Government is seeking interim relief on financial issues in a suit filed by the state government against the Centre.

Senior Advocate Kapil Sibal for Kerala Government has raised questions over Centre's conduct in a federal structure.

Attorney General R Venkataramani appearing for Centre said that the Kerala Government's own act says that they will govern their own fiscal discipline and submitted there is no question of Finance Commission recommendations being breached at all.

Earlier the Central Government proposed that an amount of Rs 5,000 crore can be given to Kerala in the present financial year as a one-time measure subject to conditions.

Senior advocate Kapil Sibal, appearing for the State of Kerala, had expressed disagreement on the Centre's proposal, saying that it is based on a presumption that the state was not entitled to the additional borrowing. He also argued that Rs 5,000 crore will not be sufficient.

The Supreme Court from time to time suggested the Centre and Kerala to negotiate and solve the issues by sitting together.

Earlier in its affidavit, the Kerala Government said that Central Government accounts for approximately 60 per cent of the total debt or outstanding liabilities of India.

In an affidavit, the Kerala Government said that Centre can't control the debt of the state and the justification put forth by the Union Government to control the borrowings of the Kerala State are fallacious, exaggerated and unjustified.

Responding to the notes filed by the Attorney General, Kerala Government made submission and said, "The Central Government accounts for approximately 60 per cent of the total debt or outstanding liabilities of India. All the states put together account for the rest (approximately) 40 per cent of the total debt of the country. In fact, the Plaintiff State accounts for a miniscule 1.70-1.75 per cent of the total debt of the Centre and the States put together for the period 2019-2023."

Kerala's financial health and debt situation have attracted adverse observations from successive Finance Commissions (12th, 14th and 15th) as well as the CAG and it is one of the most financially unhealthy states as its fiscal edifice has been diagnosed with several cracks, Attorney General said in a note submitted before the Supreme Court.

Responding to Kerala's government suit, the Centre in its affidavit, apprised the Supreme Court that Kerala has been one of the most financially unhealthy states, and its fiscal edifice of Kerala has been diagnosed with several cracks.

The Attorney General for India has filed a written note in the suit filed by Kerala Government where he said that debt of states affects the credit rating of the country.

The note was filed in response to the Kerala Government petition against the Centre's alleged interference in states' finances and said that due to such interference, the state is not able to fulfil the commitments in its annual budgets.

In a suit filed by the Kerala government, it stated that state government 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.

Kerala Government, through its petition, said Centre through the Ministry of Finance (Public Finance-State Division), Department of Expenditure letters dated March 2023 & August 2023 and by amendments made to Section 4 of the Fiscal Responsibility and Budget Management Act, of 2003 sought to interfere with the finances of the state by imposing a net borrowing ceiling on the State.

The Kerala government said that such interference with the finances of the state was caused 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.