In response to the state’s lawsuit bringing up the issue of a net borrowing ceiling, the Center informed the Supreme Court on Thursday that the Kerala government’s recent history of excessive borrowing is indicative of its financial predicament.
The Kerala government insisted that its financial situation is “sustainable enough” to support the overdrafts from prior years.
Hearing arguments on interim relief in a suit filed by the Kerala government accusing the Centre of interfering in the exercise of its “exclusive, autonomous and plenary powers” to regulate the state’s finances by imposing a borrowing ceiling was being conducted by a bench of Justices Surya Kant and K V Viswanathan.
Senior advocate Kapil Sibal, appearing for Kerala, said under the constitutional structure, the states have their budget and are entitled to manage their expenditure.
He said as far as the limit of the fiscal deficit is concerned, that is decided by the Finance Commission.
“I (Kerala) am saying I have enough fiscal space there to borrow…,” Sibal said, adding, “I am saying that the state finances are sustainable enough to bear the overborrowings in the previous years and have this borrowing here”.
“What I am going to in fact persuade your lordships and demonstrate to your lordships is that whatever we are doing, even if we do the extra borrowing, it is within the limit,” he said.
Additional Solicitor General N Venkataraman, appearing for the Centre, claimed before the bench that lots of wrong things have been said by the state.
Referring to statistics, the law officer said Kerala has been overborrowing in recent years.
He said while deciding the question of interim relief, the court should keep in mind the financial parameters of the state.
Mr Sibal argued that within the framework of the Finance Commission and the Constitution, the state is entitled to borrow.
The arguments in the matter would continue on Friday.
On March 13, the Centre had told the top court that it was ready to allow the Kerala government to borrow ₹ 5,000 crore, subject to certain conditions, to deal with the financial issues facing the state as a “very special and exceptional measure”.
However, the Kerala government had said ₹ 5,000 crore “does not take us anywhere” and the absolute minimum requirement stood at ₹ 10,000 crore.
The Kerala government argued in an original suit brought under Article 131 of the Constitution that state legislation governs borrowing limits and the extent of such borrowings, and that the Constitution grants states fiscal autonomy to regulate their finances under various articles.
The Constitution’s Article 131 addresses the Supreme Court’s original jurisdiction over any dispute involving the federal government and the states.
According to the lawsuit, states alone have the authority to decide how much money to borrow in order to balance their budgets and make up for fiscal deficits.
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