Financial package: Kerala rejects Centre's Rs 5,000-crore offer, demands Rs 10,000 cr

New Delhi: The Centre on Wednesday agreed to provide Rs 5,000 crore to Kerala after the Supreme Court asked it to consider providing a one-time package to the State government by March 31 to deal with its financial issues. But the State government refused to accept the offer and demanded at least Rs 10,000 crore to deal with its fiscal crisis.

"The Centre's offer of Rs 5,000 crore will be deducted from the next fiscal's borrowing limit. This is unacceptable as it would plunge Kerala into further crisis. We are demanding an extension of borrowing limit for this fiscal," sources from the state finance department told Manorama News.

The Centre informed the apex court that it was making an exception for Kerala as the Supreme Court had inervened in the matter. The court listed the rest of the hearing for Thursday.

The SC bench on Wednesday said the Centre can be "slightly liberal and give a one-time package as a special case" to Kerala. The bench said more rigid conditions may be put in future budgets and, in the meantime, a special package be given to the state before March 31.

Additional Solicitor General N Venkataraman, appearing for the Centre, said the offsetting balance is having a cumulative effect on Kerala's finances and the state deferred fiscal consolidation twice. Offsetting balance is a minimum credit balance that a bank may require a borrower to keep in deposit as a condition for granting a loan.

The bench had said on March 6 that fiscal mismanagement by states was an issue the Union government has to be concerned about as it impacts the nation's economy. It also advised the Union and the state governments to iron out their differences on the cap on net borrowing by Kerala.

The apex court had observed while it was hearing a suit filed by the Kerala government accusing the Union government of interfering in the exercise of its "exclusive, autonomous and plenary powers" to regulate the state's finances by imposing a ceiling on borrowing.

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

In a note submitted before the top court, the Centre had said uncontrolled borrowing by states would affect the credit rating of the whole country and that the fiscal edifice of Kerala has been diagnosed with "several cracks".