Kerala v. Union Suit On Borrowing Limits : Full Courtroom Exchange From Supreme Court Hearing

The Supreme Court on Wednesday (March 6) expressed disapproval of a condition imposed by the Union Government on the State of Kerala that the former will give consent for additional borrowing only if the latter withdrew the suit filed in the Supreme Court.A bench comprising Justices Surya Kant and KV Viswanathan was hearing the suit filed by the State of Kerala against the Union under Article 131 of the Constitution challenging the curbs placed by the Union on the State's borrowing limits.Today, the bench disapproved of the Union's stand, asking how such a condition can be placed. The bench said that the Union can impose other conditions, which are within the parameters of the Constitution, except the condition that the suit should be withdrawn.The Court prevailed upon the Centre to give consent to the additional borrowing to the extent of Rs 13,608 crores, without insisting on the condition to withdraw the suit. The Court further urged the State and the Union to hold talks to resolve the issue. A summary report of the hearing and the background of the case can be read here.Senior Advocate Kapil Sibal appeared for the State. Attorney General R Venkataramani and Additional Solicitor General N Venkataraman appeared for the Union.Here is the full court room exchange :Senior Advocate Kapil Sibal : We have tried to resolve the issue within the spirit of cooperative federalism. But given the situation which the State is in, we have no choice but to agitate this matter. I want to disabuse your lordships of any intent on our part to seek any allocation from the Union. That is not our intent. I don't wish your lordships to decide what amount of money should be given to me. There are certain Constitutional principles involved, which your lordships should settle. At the moment, we are only on the interim relief.Justice Surya Kant : Has there been any suit by any State in the past like this?Sibal : Never. This is the first of this kind. Very unique. Sibal : The economic landscape of the country is as diverse as its geographic and cultural landscape. For example hilly states like Uttarakhand, Himachal Pradesh and Arunachal, issues are different. In Kerala, there is a high density of population, and no scope for manufacturing. Only sources of income are tourism and IT. Human capital is the only source of progress. So you need to educate people. Compare it with Maharashtra- a manufacturing state, where stock markets are booming, biggest factories are there. The point I am making is the nature of the economy of each state and the budgetary allocation of each state are different.Justice Kant : It is influenced by the local needs.Sibal : If you look at the Constitution, you will realise that the powers and responsibilities of the Union as well as the States are symmetrical. There is no asymmetry in those powers of the Union and States. Total revenue collected 63% goes to Union. And they spend about 40%. In the States, it is the reverse. States spend more than they earn. Naturally, the allocation in terms of what all the States get is decided by the recommendations of the Finance Commission. Having said that, we, decide on our own budget. The Union cannot control our budget. Our budget is tailor-made to the needs of our people.Another thing, in the absence of deficit financing, there can be no progress. If you spend whatever you earn, you won't be able to invest in capital assets, be it infrastructure or human capital. Those priorities are not decided by the Union, but by the State. All that the Union does is, share the revenue as recommended by the Finance Commission. The State decides the budget and the nature of expenditure. States also have the Fiscal Responsibility Act. So we cannot go beyond the limit of our fiscal responsibility. There is a free play in the joints for the States as long as we don't breach the fiscal responsibility. Even if we borrow, we won't breach the Fiscal Responsibility Act. Union have always breached their fiscal responsibility. Even they are continuing to do it. Be that as it may. They have made very serious allegations against the State. If I start talking about the Union, I don't want to talk about it in public, it is part of the official records, part of the CAG, part of the Finance Commission. If we start going into that, then there is no point.Justice Kant : We are on legal points. Judicial platforms should not be used to damage the image of the States or Union.Sibal : That's what they have done in their affidavit. We have to reply. So I request all parties to purely look at the legal issues.Sibal : Let's go back to independence days. Those days 98% of borrowing was from the Centre or its institutions. 12th Finance Commission....J Kant : Borrowing is incidental to the deficit?Sibal : It has to be.J Kant : Borrowing necessarily implies a schedule of repayment also?Sibal : Naturally. That the financial institutions will decide. What has the Union got to do with it? That the market will...

Kerala v. Union Suit On Borrowing Limits : Full Courtroom Exchange From Supreme Court Hearing

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