KOCHI : The Kerala government’s case, filed in the Supreme Court, highlights that the limits imposed by the Union Government on the state’s borrowing powers have plunged the state’s approved budget into a severe crisis by withholding resources amounting to Rs 1.07 lakh crore since 2017. The state took its case to the apex court in December, contending that the actions of the Union Government were encroaching upon the state’s capacity to meet its fiscal obligations.
In the suit, Kerala asserts its exclusive authority to regulate its finances by preparing and managing its budget and borrowings. Kerala argued before the apex court that the Union Government lacks the constitutional right or authority to issue directives to the state government under Article 293 of the Constitution that could undermine the federal structure by encroaching upon the state’s exclusive financial domains.
It further contended that the Union Government under the guise of ‘sound public financial management’, infringes upon or encroaches upon the comprehensive powers of the states.
Kerala argues before the court that it has suffered a significant loss of Rs 91,617.59 crore from FY 2017 onwards due to a new order implemented in 2017 by the Union Government, as outlined in the Finance Commission report. This order introduced the practice of deducting the balances in the public account of Kerala and other states from their Net Borrowing Ceiling (NBC). Furthermore, through another order implemented in 2022, the state has incurred an additional borrowing entitlement loss of Rs 15,895.50 crore.
This second order relates to deducting the borrowings of state-owned enterprises on the grounds that they utilise budgetary support of the state for repaying its liabilities. In total, Kerala has experienced a cumulative expenditure loss or resource deficiency of Rs 1,07,513.09 crore over fiscal years 2016-2023, as stated in the affidavit.
Kerala stated that the actions of the Union Government have resulted in significant arrears that the state owes in terms of welfare schemes to its people, especially the poor and vulnerable, various beneficiary groups, state government employees, pensioners, and dues to its state-owned enterprises.
It highlighted that the net negative impact or loss sustained by the State’s economy could amount to as high as Rs 2 to 3 lakh crore, based on 2016-17 as the base year. This represents 20-30% of the state’s current GDP over six years.
Kerala argued that unless the Net Borrowing Ceiling (NBC), as fixed by the Kerala Fiscal Responsibility Act, 2003, the state is legitimately apprehensive that its treasury operations will be halted or starkly curtailed. The state added that there is a dire situation looming ahead and the immediate consequences to the state will be catastrophic.
Asserts authority
In the suit, Kerala asserts its exclusive authority to regulate its finances by preparing and managing budget and borrowings
Highlights that the net negative impact or loss sustained by the State’s economy could amount to as high as Rs 2 to 3 lakh crore, based on 2016-17 as the base year