Central government cannot violate Constitution citing public finance management: Kerala to Supreme Court

The Central government cannot assume extra-constitutional powers to bolster its public finance management credentials, the State of Kerala recently told the Supreme Court [State of Kerala vs Union of India]..The Central government's reliance on Kerala's financial indicators to limit the latter's borrowing capacity is fallacious, exaggerated and plainly unjustified, the Pinarayi Vijayan government told the top court."Under the pretext of public finance management, the Union Government cannot assume a role or seek to exercise powers that are extraconstitutional, and/or violate provisions of the Constitution ... Encroachment into the exclusive legislative and executive domains of the States cannot be justified on the basis of any theory of necessity, impact on the national economy, potential abuse of powers by the States," the State government said in an affidavit filed before the apex court. .The affidavit was filed in an original suit filed by the State earlier raising grievance over the Central government allegedly interfering with the State’s power to borrow and regulate its finances.The plea filed by the Kerala government in December last year alleged that the Centre's actions can lead to a grave financial crisis as the State has not been able to fulfil the commitments made in its annual budgets.The Supreme Court had in January issued notice to the Central government in the case.The Central government then filed a counter affidavit in which it said that Kerala's financial health is in dire straits due to substantial off-budget borrowings and a compromised fiscal edifice.It underscored that prudent public finance management is a national priority, with implications for the nation's competitiveness and sovereign credit ratings.If a State indulges in reckless borrowing to finance unproductive expenditure or poorly targeted subsidies, it will crowd out private borrowing from the market, it contended..In response to that, the State in its reply has stated that it is the Union government that has a dismal record of reining in its own debt. "If any level in the federal structure in India can borrow “recklessly”, it is only the Union Government that can do it ... That a subject is a national issue, does not grant any powers to the Defendant Union to encroach into the legislative and executive domain of the State," the State's affidavit said. .It added that the Central government in trying to make States liable for national debt crises, is raising a bogey of contrived and exaggerated fears to paint an imaginary spectre.The State's affidavit claimed that its fiscal and revenue deficit targets are within the ranges recommended by the 15th Finance Commission. Therefore, the Kerala government's financial indicators have no relevance in a challenge to the constitutionality of the Central government attempting to contravene, encroach upon, thwart and stifle the plenary financial powers of the Plaintiff-State under the Constitution, it was submitted. .The Supreme Court is slated to hear the case next on February 13.