Supreme Court refuses to grant interim relief to Kerala on borrowing cap restrictions

The Supreme Court on Monday refused to grant interim relief to Kerala for additional borrowing for the financial year 2023-’24, reported Live Law.

A bench of Justices Justices Surya Kant and KV Viswanathan also referred to a five-judge Consitution bench the Kerala government’s petition against the Bharatiya Janata Party-led Centre for imposing a ceiling on the state’s borrowing capacity.

In the petition filed in December, the state government had said that the cap on the state’s borrowing violated the principles of fiscal federalism. It also said that lowering the borrowing limit can potentially lead to a “grave financial crisis” in Kerala.

Hearing the matter on Monday, the bench observed that the state received substantial relief for the financial year from the Union government following the intervention of the court. It also stated that the prima facie case and the balance of convenience were in favour of the Centre.

However, noting that the petition raised issues relating to the interpretation of the Constitution, it referred the matter to a Constitution bench.

The case

The Central government had fixed a borrowing limit of Rs 47,762.58 crore on Kerala for the current fiscal year, according to PTI. Of the total, Rs 29,136.71 crore was Open Market Borrowing while the rest is borrowing from other sources.

Under Open Market Borrowing, states can borrow from the market to meet their budgetary requirements.

Kerala had requested the Centre to allow an additional borrowing equivalent to 1% of the Gross State Domestic Product over and above the borrowing ceiling fixed for the fiscal year 2023-’24. The state had said that it urgently requires around Rs 26,000 crore to meet its financial obligations.

However, on December 4, Union Finance Minister Nirmala Sitharaman said that there is no proposal to relax the existing terms for the borrowing capacity of state governments, including Kerala.

In a hearing on March 21, Kerala told the Supreme Court that the Centre was attempting to control its financial affairs and acting like an “executive”.

The Centre, in response, alleged that the state government had misrepresented financial figures and consistently overborrowed in recent years.

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