THIRUVANANTHAPURAM: The state government on Thursday submitted before the Supreme Court that its borrowings were within the fiscal deficit limits and that the state has not defaulted on repayment.
The state challenged the restrictions on borrowings imposed by the Union government terming them unconstitutional. The Union government countered that sanction cannot be given to the state for additional borrowings since the state overborrowed in previous years and that its revenue deficit indicated an “unsustainable financial situation”.
The court was hearing the state government’s plea for interim relief to overcome the financial crisis. The hearing will continue on Friday.
Senior advocate Kapil Sibal representing Kerala said the Union government did not have the power to overrule the Finance Commission’s recommendations and disentitle the state from market borrowings.
The Union government’s executive order restricting the state from additional borrowing was unconstitutional. He said Kerala’s borrowing was sustainable and the state never defaulted on repayment since 1960. The state’s administrators were aware of the liabilities.
The state could not have sold its bonds in the market if they were deemed unsustainable. The state is entitled to devise its programme, budget, spending and the quantum of borrowing, he said. After liberalisation, Sibal said, Kerala’s borrowing from the Union government reduced from 98 percent to 2.9 per cent.
Additional Solicitor General N Venkataraman who represented the Union government opposed additional borrowing sanction for the state. He said the state’s revenue deficit pointed to an unsustainable financial situation. Kerala resorted to overborrowing in the past years and the state’s macroeconomic stability is doubtful. The state had poor financial indicators like high outstanding liabilities as percentage of GSDP at 39 per cent. Its committed expenditure was 82.40 per cent of the revenue. He cited the CAG’s finding that the state failed to meet the targets under the Kerala Fiscal Responsibility Act, 2003. The ASG said the Union government had declined 14 requests for overborrowings from nine states in the past and Kerala’s request cannot be entertained.
ARGUMENTS
Kerala
Union government cannot overrule FC recommendations
Restriction unconstitutional
Borrowing sustainable
Never defaulted repayment since 1960
Union government
Kerala’s revenue deficit high
State overborrowed in previous years
Macroeconomic stability doubtful
Similar requests from 9 other states were declined
