Supreme Court asks Kerala, Centre to resolve issue of borrowing limit through dialogue

New Delhi: The Supreme Court on Tuesday asked the Kerala government to resolve the issues with the Centre through dialogue while considering the suit challenging the limits imposed on the states' borrowing powers.

An SC bench comprising Justices Surya Kant and KV Vishwanathan recommended that the finance secretary of the state should meet the union finance minister and resolve the deadlock through negotiation.

Following this, Attorney General R Venkataramani told the bench that the Union of India is agreeable to holding a meeting with Kerala on the issue.

"The suggestion falling from the court has received highest regard that it deserves. The government is open to a meeting. Let's keep it open without any conditions," Venkataramani said.

The Centre had earlier intimated the Supreme Court about the risk of uncontrolled state borrowing and its impact on the country's overall credit rating. The fiscal edifice of Kerala has been diagnosed with "several cracks", the Centre said on the issue of limits imposed on the state's borrowing capacity.

In a note submitted before the top court, Attorney General R Venkataramani submitted that public finance management is a national issue. Venkataramani said if the State indulges in reckless borrowing to finance unproductive expenditure or poorly targeted subsidies, it will crowd out private borrowing from the market. He added that the borrowing limits of States are fixed in a non-discriminatory and transparent manner guided by the recommendations of the Finance Commission.

In an original suit filed under Article 131 of the Constitution, the Kerala government has said the Constitution bestows fiscal autonomy on states to regulate their finances under various articles, and borrowing limits or the extent of such borrowings are regulated by a state legislation.

Article 131 of the Constitution deals with original jurisdiction of the apex court in any dispute between the Centre and states. The suit referred to the letters dated March 27, 2023 and August 11, 2023 issued by the Centre, through the Ministry of Finance (Public Finance-State Division), Department of Expenditure, and the amendments made to section 4 of the Fiscal Responsibility and Budget Management Act, 2003.
(With PTI inputs.)