Today (6th of March): The bench said the dialogue between the Centre and the Kerala government on the issue must not stop. “The dialogue must continue. That is the strength of the relationship between the Union and the state,” it said.
NEW DELHI: Today (6th of March): The Supreme Court of India emphasized the significance of addressing fiscal mismanagement among states, noting its repercussions on the national economy. During proceedings on Wednesday, the Court advised the Union Government and the Kerala administration to resolve their differences regarding a cap on net borrowing by the southern state. The dispute was caused by a suit filed by the Kerala government alleging undue interference by the Union of India in regulating the state’s finances through the imposition of borrowing limits.
Acknowledging the pending litigation, the Court stressed the importance of ongoing dialogue between the Center and the state, emphasizing the need for a resolution beyond legal proceedings.
The bench comprising of Justice Surya Kant and Justice K V Viswanathan said.
“Let the competent senior officials, actively engaged in decision-making, come together and resolve this issue.”
Appearing for the Kerala government on Wednesday, senior advocate Kapil Sibal said the state was left with no choice but to address the issue.
Sibal said he wanted to inform the court with a “heavy heart” that though the issue needed to be resolved in the spirit of cooperative federalism, it has not.
At the moment, Sibal said, the state needed a breather.
The bench said Sibal had submitted a note at the last hearing where he gave a brief description about an agreement that was probably reached at the February 15 meeting. Additional Solicitor General (ASG) N Venkataraman, appearing for the Centre, had also given a note, the court recalled.
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The Court also emphasized the urgency of the matter, especially as Kerala required immediate borrowing, while noting the broader impact of state fiscal policies on the national economy.
The notes, the bench recalled, said since Kerala has challenged the Centre’s power to impose conditions on borrowing, the state’s request for additional borrowing can only be considered after it has withdrawn the suit.
“What we only want to suggest to you right now is that you don’t insist on the condition of withdrawal of the suit,” the bench told the Centre, adding the Government of India can impose other conditions for improved fiscal management.
With Attorney General R Venkataramani and ASG Venkataraman representing the Center, the bench said, “You cannot say withdraw the suit. That is a constitutional right under Article 131 (of the Constitution).”
Sibal said there was a need to tackle the issue today as the state needs to borrow a certain amount. “It is not that the Union has picked out something that is only adverse to a particular state,” the attorney general said.
Article 131 empowers the apex court to deal with disputes between the Center and a state or between states.
The bench, while taking note of their arguments, said the matter requires “very serious consideration because fiscal mismanagement of the states is an issue with which the Union must be concerned because ultimately it has its own impact on the nation’s economy.”.
“As regards their (Kerala) additional demand, let a meeting be held today itself in the afternoon or may be tomorrow,” the court said.
The ASG, while advancing his arguments, said the fiscal deficit is in “deep decline” and that India is better placed than G-7 nations in terms of economic stability.
The bench concurred with him and observed that the world was recognising the India’s economy.
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“Even in judicial functions, when we go outside the country, we get this kind of feeling… It is not based on perception. It is based on correct facts and figures and the strong pillars on which the economy is surviving and thriving,” the bench said.
The bench emphasized the importance of ongoing dialogue between the Center and Kerala, noting its fundamental role in maintaining cooperative federalism. It refrained from setting a specific date for the next hearing, granting parties the liberty to schedule discussions as necessary.
The bench said the dialogue between the Centre and the Kerala government on the issue must not stop. “The dialogue must continue. That is the strength of the relationship between the Union and the state,” it said.
The Kerala government’s suit under Article 131 of Indian Constitution emphasized its constitutional prerogative to regulate its finances autonomously. In response, the Center cited concerns over uncontrolled borrowing, emphasizing the potential impact on the nation’s credit rating and highlighting fiscal vulnerabilities within Kerala’s economy.
