On Wednesday, 13th March, the Union government informed the Supreme Court that it would permit Kerala to borrow an extra Rs 5,000 crore in the ongoing financial year, which concludes on 31st March, as a one-time measure.
The state of Kerala has turned down a significant offer from the Union Government on Wednesday. The proposal, which involved an additional borrowing capacity of Rs 5,000 crore for the current financial year, was intended as a one-time measure to alleviate the state’s financial distress. However, Kerala’s response, articulated by Senior Advocate Kapil Sibal, underscored the state’s dire need for a more substantial relief, pegging the minimum requirement at Rs 10,000 crore.
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Kapil Sibal’s rejection of the central offer was rooted in the belief that the proposed amount fell short of addressing the state’s financial woes.
“Rs 5,000 crore will not take us anywhere; we need at least Rs 10,000 crore,”
Sibal remarked, highlighting the state’s perspective that the offer was based on an assumption undermining Kerala’s fiscal needs.
The Union Government, represented by additional solicitor general N Venkataraman, expressed its reservations, emphasizing that the offer came with stringent conditions to avoid setting a precedent for other states. The government’s stance was influenced by concerns over potential requests from other states, which could lead to a nationwide fiscal imbalance.
“In view of the court’s suggestion, we can allow Rs 5,000 crore that will be deducted from the net borrowing ceiling for the first nine months… subject to certain conditions,”
Venkataraman stated, outlining the conditional nature of the offer.
The Supreme Court, with Justices Surya Kant and KV Viswanathan presiding, had recommended the Union Government to consider Kerala’s situation as exceptional and extend a one-time package by March 31. This suggestion came amidst ongoing legal proceedings initiated by the Kerala government, which sought judicial intervention over the imposed borrowing ceiling.
The court’s involvement became necessary after multiple rounds of negotiations between the state and the Union Government reached a stalemate. With both parties requesting a detailed hearing, the Supreme Court has scheduled further proceedings for March 21.
During the discussions, the Union Government’s note revealed the specifics of the offer, which included conditions such as quarterly borrowing limits and a prohibition on ad hoc borrowing for the entire fiscal year. The note also stipulated that Kerala must submit and implement a ‘Plan B’ aimed at enhancing revenue and stabilizing its financial position before any borrowing in the last quarter of FY25 would be permitted.
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Despite these measures, Venkataraman voiced concerns over the sufficiency of the allocated funds, given Kerala’s historical spending patterns. He warned that acceding to the state’s demand for Rs 10,000 crore could exacerbate its financial situation and set a precarious precedent for other states.
The legal battle stems from the Union Government’s imposition of a net borrowing ceiling on Kerala, limiting its ability to raise funds from various sources, including the open market. The central government attributes the state’s financial strain to mismanagement, asserting that Kerala has received “substantial financial resources” beyond the recommendations of the 15th Finance Commission, including a back-to-back loan of Rs 14,505 crore to offset GST compensation shortfalls.
As the situation unfolds, the Kerala government’s lawsuit against the Union Government’s borrowing restrictions continues to be a focal point of debate. With the Supreme Court’s intervention, the case not only highlights Kerala’s fiscal challenges but also raises broader questions about state autonomy, fiscal responsibility, and the central-state financial dynamics in India. As stakeholders await the court’s detailed hearing, the outcome could have far-reaching implications for Kerala’s economic management and the fiscal framework governing state borrowings in India.
