Kerala Govt files suit in SC to alleviate financial distress arising due to alleged Centre's interference

New Delhi: The Kerala government has approached the Supreme Court against the centre's alleged interference in the state's finances, and said that such interference hampers the state's ability to fulfil commitments in its annual budgets.

In a suit filed by the Kerala government, it stated that the state government deals with the executive power conferred on the plaintiff state under Article 293 of the Constitution of India to borrow on the security or guarantee of the consolidated fund of the state in alignment with the fiscal autonomy of the plaintiff state as guaranteed and enshrined in the Constitution.

Kerala Government, through its petition, said the Centre, through the Ministry of Finance (Public Finance-State Division), Department of Expenditure letters dated March 2023 and August 2023 and amendments made to Section 4 of the Fiscal Responsibility and Budget Management Act, 2003 sought to interfere with the finances of the state by imposing a Net Borrowing Ceiling on the State.
Kerala Government said that such interference with the finances of the State by imposing a Net Borrowing Ceiling on the Plaintiff State in the manner deemed fit by the Defendant Union, which limits borrowings from all sources, including open market borrowings.

The state government further added that it further reducing the Net Borrowing Ceiling by including aspects into the "borrowing" of the State which, otherwise, are not "borrowings" as contemplated under Article 293 of the Constitution: (a) by deducting liabilities arising from the Public Account of the State to arrive at the NBC; and (b) by deducting the borrowings by State owned enterprises where the principal and/ or interest is serviced out of the budget or where such borrowings are made to finance schemes announced by the Plaintiff State, to arrive at NBC (iii) imposing conditions in the guise of exercise of powers under Article 293(3) read with Article 293(4) that curtails the exclusive constitutional powers of the plaintiff State.

Kerala Government said that due to the Centre's interference, the state is not able to fulfil the commitments in its annual budgets.
"This has resulted in huge arrears that the Plaintiff State owes by way of welfare schemes to the people of the State particularly the poor and the vulnerable, various beneficiary groups, the employees of the State Government, its pensioners and dues to its State-Owned Enterprises," Kerala Government said in the petition.
Kerala Government said that these unpaid dues are a direct consequence of the first Impugned Order. These dues have accumulated over the years because of financial constraints due to the imposition of borrowing ceiling by the Defendant Union, including through the Impugned Orders.

"As on 31.10.2023, a sum of INR 26,226 crores is imminently and urgently required in order for the Plaintiff State to avert the impending grave financial crisis that has been caused by the Impugned Orders," the suit read.

Despite the exclusivity of the power of the State, and the framework already laid down through the exercise of such power, the Impugned Orders and Impugned Amendment create unconstitutional limits and impediments on the State to borrow and regulate its own finances, therefore violating the provisions and principles of fiscal federalism under the Constitution, the Kerala government said.

Kerala Government said that the suit squarely raises a dispute as to the right, power and authority of the Defendant Union to interfere with the exclusive, autonomous and plenary powers of the Plaintiff State to regulate its finances under several provisions of the Constitution.