Senior Advocate Kapil Sibal, representing the Kerala government, highlighted that the borrowing constraints imposed by the Centre were impacting the state’s capacity to disburse salary payments.
On Friday, the Supreme Court requested the Central government to respond to an initial lawsuit filed by the Kerala government, expressing concerns about the alleged interference by the Centre in the state’s authority to borrow and manage its financial affairs.
A panel comprising Justices Surya Kant and KV Viswanathan also issued notice on the application for interim relief, scheduled for return on January 25.
Senior Advocate Kapil Sibal represented the Kerala government, emphasizing that the imposed borrowing limits were adversely affecting the State’s capacity to disburse salary payments and various other aspects.
The Bench was addressing the plea filed by the Kerala government in December, wherein it accused the Central government of exerting control over its budgeting process through executive actions.
Through a suit filed under Article 131 of the Constitution, the State government, represented by its Chief Secretary, highlighted that the Union government’s imposition of borrowing ceilings has resulted in the accumulation of unpaid dues, posing a serious financial threat.
The State argued that the Union government’s determination of a Net Borrowing Ceiling restricts borrowings from all sources, including the open market, thereby infringing upon the exclusive constitutional powers of the State.
The Kerala government asserted that the authority to decide the state’s borrowing, crucial for balancing the budget and addressing the Fiscal Deficit, is a prerogative exclusively vested in the states.
Specifically, the State government raised objections to the directives issued by the Ministry of Finance in letters dated March and August 2023. Additionally, it contested the modifications made to Section 4 of the Fiscal Responsibility and Budget Management Act, 2003, as introduced by the Finance Act, 2018.
According to the government’s argument, the directives conveyed through these letters impose unconstitutional restrictions and hindrances on the State’s ability to borrow and manage its own finances.
The State government informed the top court that it has incurred a cumulative expenditure loss or resource deficiency amounting to ₹1,07,513.09 crore between Fiscal Years 2016-2023 due to such actions by the Central government. Consequently, the State asserted that it has been unable to fulfill the commitments outlined in its annual budgets.
In recent months, numerous states have turned to the Supreme Court, challenging their respective Governors’ inaction on bills approved by state assemblies. Kerala has become the second state to approach the top court in a short span, specifically regarding a financial dispute with the Central government.
Prior to this, the Punjab government initiated legal action against the Central government, alleging non-reimbursement of statutory fees exceeding ₹4,000 crore. These fees were reportedly imposed by the State government on behalf of the Central government during the procurement of food grains.
