Kerala moves Supreme Court alleging Centre interfering in State's finances, capping power to borrow

The Kerala government has moved the Supreme Court against the Centre’s alleged interference with the State’s power to borrow and regulate its own finances, alleging that the Union government has "taken control over its budgeting process" through executive actions..The State government in a suit moved under Article 131 of the Constitution through its Chief Secretary alleged that imposition of the borrowing ceiling put by the Union government has led to an accumulation of unpaid dues over the years and could lead to a grave financial crisis.“As on 31.10.2023, a sum of ₹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 before the top court states.Kerala has contended that imposition of a Net Borrowing Ceiling as deemed by the Union government limits borrowings from all sources including the open market and thus curtails the exclusive constitutional powers of the State. “Unless the Net Borrowing Ceiling, as fixed by the Kerala Fiscal Responsibility Act,2003, based on which the Budget of the Plaintiff State has been drawn up and approved by the Legislature is restored, the Plaintiff State is legitimately apprehensive that its treasury operations will be halted or starkly curtailed. This is a dire situation looming ahead, the immediate consequences to the Plaintiff State will be catastrophic,” the plea argued..The ability to determine the borrowing of the State in order to balance the budget and make up the Fiscal Deficit is exclusively within the domain of the States, Kerala has told the top court.In particular, the State government has challenged the directions issued by the Ministry of Finance of the letters written in March and August this year. It has also challenged the amendments to Section 4 of the Fiscal Responsibility and Budget Management Act, 2003 through the Finance Act, 2018.The directions issued through the letters create unconstitutional limits and impediments on the State to borrow and regulate its own finances, the government has argued.On the challenge to the amendment made in 2018, the State government has said it has a reasonable fear that the same will be used to legitimise and legalise the executive actions taken through the letters or orders.“The Defendant does not have the constitutional right or authority to issue directives to the State Government under Article 293 of the Constitution which have the potential to damage the federal structure by transgressing upon the exclusive financial domains of the State,” the suit contends..The State government has suffered a cumulative expenditure loss or resource deficiency of ₹1,07,513.09 crores over Fiscal Year 2016-2023 due to such actions of the Central government, the top court has been told.Due to that, the State said it was not able to fulfil the commitment made 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,” the suit added.While many States have approached the Supreme Court in recent months against their respective Governors' inaction on the bills passed by State assemblies, Kerala is the second State to move the top court this year in relation to a financial dispute with the Central government.Earlier, the Punjab government has filed a suit against the Central government over the non-reimbursement of statutory fees allegedly running into over ₹4,000 crores that the State government had levied on behalf of the Central government during the procurement of food grains.