Kerala Government Challenges Centre’s Borrowing Ceiling in SC

December 14, 2023

The Kerala government has taken a decisive step by approaching the Supreme Court to contest the imposition of borrowing limits by the Central government. The state argues that this move has pushed its budget into a severe crisis, violating the principles of fiscal federalism.

Grave Consequences for Kerala’s Budget

In an original suit filed under Article 131 of the Constitution, Kerala expresses deep concern about the impact of the imposed Net Borrowing Ceiling. According to Kerala, unless the ceiling, determined by the Kerala Fiscal Responsibility Act, 2003, is restored, the state faces the legitimate fear that its treasury operations will be halted or significantly curtailed, leading to catastrophic immediate consequences.

Long-term Economic Damage Looms

The state emphasizes that the reduction in borrowing limits will inflict extremely deleterious effects and result in long-term economic damage. Kerala argues that this damage will be irremediable in the short and medium term. The plea contends that reversing the anticipated negative consequences of the imposed measures may require a prolonged and costly effort.

Fiscal Autonomy and Constitutional Rights

Kerala asserts that the Constitution grants fiscal autonomy to states, allowing them to regulate their finances under various articles. It emphasizes that states have been exercising these powers for decades post-Independence to prepare and manage their budgets. The plea underscores that the exclusive authority to determine state borrowing, essential for balancing the budget and managing fiscal deficits, lies within the domain of the states.

Implications on State Plans and Constitutional Rights

The suit highlights that if the state is unable to borrow as required by its budget, it will be unable to complete its State Plans for the fiscal year. Therefore, Kerala argues, it is essential for both the state and its people that the state can exercise its constitutional rights without impediments on its borrowing capacity.

Finance Ministry’s Amendments Under Scrutiny

The suit brings attention to the Finance Ministry’s amendments to Section 4 of the Fiscal Responsibility and Budget Management Act, 2003. It points out that the imposition of a Net Borrowing Ceiling on Kerala, limiting its borrowings from all sources, including the open market, is a direct consequence of these amendments. Furthermore, Kerala contends that the reduction of the Net Borrowing Ceiling involves aspects that do not align with the constitutional definition of “borrowings” as contemplated under Article 293.

Curtailing Exclusive Constitutional Powers

In its legal challenge, Kerala argues that the conditions imposed by the Finance Ministry curtail the exclusive constitutional powers of the state. The state contends that these conditions go beyond the constitutional framework, further exacerbating the financial challenges it faces.

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