SC directs Kerala, Centre to convene meeting over financial issues

NEW DELHI: The Supreme Court on Wednesday directed the Kerala government to hold a meeting with the Centre and state officials to resolve the financial issues arising between them. The direction from the bench of Justices Surya Kant and KV Vishwanathan came while hearing the Kerala government plea raising the grave financial crisis faced by the coastal state.

The court clarified that the meeting should be held positively to resolve the dispute and cautioned them not to bring politics into it. The court also remarked that India's economy is robust and recognised in the entire world.

Earlier in its affidavit, the Kerala government said that the 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 the 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 is fallacious, exaggerated and unjustified.

Responding to the notes filed by the Attorney General, the Kerala Government made a 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, the 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 has been diagnosed with several cracks.

The Attorney General for India has filed a written note in the suit filed by the Kerala government where he said that the debt of states affects the credit rating of the country. The note was filed in response to the Kerala government's petition against the centre's alleged interference in the state's 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 the 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 the centre, through the Ministry of Finance (Public Finance-State Division), Department of Expenditure letters dated March 2023 and August 2023 and by amendments made to Section 4 of the Fiscal Responsibility.

The 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.