SC allows cash-starved Kerala to borrow Rs 13,608 crore this fiscal

Brushing aside the condition put forward by the Centre, the Supreme Court on Thursday allowed Kerala to borrow Rs 13,608 crore in four instalments this quarter. 

Though the amount was within Kerala's eligible borrowing limit for this fiscal, the Centre had taken the stand that it could be allowed only if Kerala withdraws its original suit seeking interim relief from the Centre. The SC has also asked both the parties to hold yet another round of discussion to thrash out pending issues.

On February 15, following Supreme Court's instructions, a Kerala delegation led by finance minister had held talks with Centre's representatives led by finance secretary T V Somanathan. The meeting did not make much headway and four days later on February 19 the Centre submitted before the apex court that it was willing to consider Kerala' request only if the suit was withdrawn.

The Court has now said that no one could be prohibited from approaching courts for relief. Finance minister K N Balagopal termed it a favourable verdict but added that Kerala was already eligible for such an amount.

"This is an amount we could have anyway borrowed during this last quarter of this fiscal. But it is a good thing that the Court has said that the state has the right to move the court for relief," Balagopal told reporters in Thiruvananthapuram.  "Nonetheless, it is also a fact that this would not be enough," he said. Kerala has sought permission to borrow another Rs 15,000 crore, which the Centre has objected to. This would be one of the things that would come up for discussion by the two delegations. 

The finance minister said the discussions would be held immediately, probably tomorrow.

The Centre had argued that it had consented to an annual borrowing of Rs 34,230 crore for Kerala even before the suit was filed. The Centre claims that this was Rs 1788 crore more than the statutory ceiling of 3% of the GSDP. 

If Kerala's budget figures for 2023-24 is considered, the Centre's claim is right. But if the revised estimates for 2023-24 are taken into account, Kerala's borrowing limit would be Rs 35,227 crore. The Rs 13,608 crore that has now been sanctioned comes under this.

According to the Centre, it has not placed any conditions for the sanction of Rs 13,608 crore. The insistence on withdrawal of suit was only for an additional borrowing of Rs 11,731 crore. This additional amount included Rs 4866 crore that would be sanctioned if certain power sector reforms were carried out, Rs 2,543 crore that was earlier held back on account of the borrowings by KIIFB and KSSPL, and also Rs 4,322 crore held back for the utilisation of Public Account.

Mutual trust
The court emphasised the importance of mutual trust between the Union and Kerala governments, while also indicating that the state should not withdraw its petition in the matter. The court dismissed the Centre's proposal to discuss the matter only after the petition was withdrawn, affirming Kerala's right to proceed with the petition.

No public response
The court also urged restraint on political commentary regarding the matter, as Kerala's counsel Kapil Sibal noted that central government leaders had already made public statements on the issue.

Additional burden
During the arguments, the central government alleged that all states should be subject to the same law, and if Kerala's demand was not met, there would be no further action. Kerala defended its financial management practices, asserting its autonomous right to manage its budget and emphasising that its need to borrow stemmed from the authority to finance its activities, rather than a request for funds.

Kerala clarified that its demand was not for funds from the central government but rather for permission to borrow. The state also highlighted issues such as the inclusion of self-governing bodies' debt within the state's scope and the central government's obstruction of Rs 12,000 crore collection.

Overreach
Kerala also argued against comparing its budget with other states', emphasising that budget considerations vary and that the state has constitutional authority over its budget presentation. The bench allowed both parties to take the matter directly to the court after discussion, despite Kerala's request for clarification on considering it as an emergency situation.