Kerala’s Lawsuit Against Centre Seeks Relief from Borrowing Limits

January 26, 2024

The state of Kerala filed a lawsuit under Article 131 of the Indian Constitution in the Supreme Court challenging the Centre’s recent actions limiting states’ borrowing capacities. Kerala sought an injunction to prevent curtailment of its ability to borrow over ₹26,000 crore to clear fiscal obligations. It alleges the steps violate federalism and severely damage the state’s economy.

Urgency Downplayed

The Centre argued there was no urgency for the court to hear Kerala’s interim application prior to the overall case. The Attorney General said Kerala was hiding its own financial mismanagement and the case should not be dealt with piecemeal through interim orders. Kerala cited upcoming budget deadlines it would be unable to meet due to the borrowing curbs.

Federalism, Fiscal Powers Targeted

Kerala’s lawsuit contends the Centre’s orders undermine federalism by handicapping states’ exclusive powers over fiscal policymaking and budgetary management. It argues the steps interfere in the state’s ability to operate public sector enterprises, allocate spending, and borrow against its budget to raise funds.

Arbitrary Borrowing Limits

Specifically, Kerala challenges the Net Borrowing Ceiling (NBC) unilaterally imposed by the Centre to restrict total borrowing by states. It claims amendments to fiscal responsibility laws improperly encroach on states’ constitutional authority over public debt and borrowing. Kerala alleges this is illegal fiscal overreach violating federal cooperative principles.

Solvency Fears

Kerala argues the NBC threatens its solvency and risks default on obligations. But the Centre asserts fiscal discipline is required due to Kerala’s track record of poor financial management compared to other states not facing crises despite the borrowing limits. The court has yet to decide on urgent relief.

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