Centre Open To Talks With Kerala On Issue Of Borrowing Limits : AG Tells Supreme Court

Awstika Das

13 Feb 2024 3:24 PM IST

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Centre Open To Talks With Kerala On Issue Of Borrowing Limits : AG Tells Supreme Court

Attorney General for India R Venkataramani on Tuesday (February 13) told the Supreme Court that the Central Government was open to talks with the Kerala government on the issue of the limits placed by the Centre on the State's borrowing limits. In turn, the state government has also agreed to send a delegation tomorrow to Delhi to conduct a dialogue with representatives of the central...

A bench of Justices Surya Kant and KV Viswanathan was hearing the Kerala government's prayer for interim relief in its suit filed against the Union of India over borrowing limitations. These interim prayers have been filed in an original suit by the state government challenging what it perceives as encroachments on its financial autonomy by the central government.

On Tuesday morning, the bench recommended that the finance secretary of Kerala engage in dialogue with the union finance minister to break the deadlock through negotiation. Agreeing to this suggestion, Senior Advocate Kapil Sibal, for the State of Kerala, indicated that the state secretary would be available for the conversation later in the day. The Attorney-General, on the other hand, requested the hearing to be postponed until 2 PM to seek instructions.

Justice Surya Kant stressed the importance of genuine initiative and dialogue in resolving the impasse. Before postponing the hearing, the judge said, "Let this not be an empty formality. Only when you think that there is a possibility...Only if some initiative will be there, then only we will request...And in case, you decide there can be a dialogue, then also identify who will be the appropriate authority. We will go by your suggestion."

When this matter was taken up again in the afternoon, AG Venkataramani informed the court, "The suggestion falling from the court has received the highest regard that it deserves. The government is open to a meeting. Let's keep it open without putting any...so that there is an open dialogue and whatever emerges out of it may pave the way for the way forward."

Concurring, Sibal said, "We will fly a delegation from Kerala by tomorrow morning. Unfortunately, the budget will be presented by the finance minister tomorrow and day after. Others will come so that the dialogue may start tomorrow."

"Whether the state or the Centre...There are seasoned administrators who have in their public life seen the world in different capacities. We are confident that you will be able to find a solution," Justice Kant said with optimism.

"This is cooperative federalism in action," Justice Viswanathan chimed in, commending the union and Kerala governments for demonstrating their willingness to resolve the dispute over borrowing curbs through negotiation and dialogue.

Sibal assured, "This cooperation will continue at least on this end, that's for sure. We are deeply obliged."

At the end, the bench directed the matter to be listed on Monday, February 19 for directions. Justice Kant said, "We'll not hear it on merits. We will fix a date on Monday."

Background

The genesis of this legal dispute dates back to December, when Kerala petitioned the apex court, denouncing what it deemed as undue interference from the central government in its fiscal affairs. The state asserted that certain directives and amendments issued by the Ministry of Finance were inhibiting its ability to fulfil budgetary commitments, thereby imperilling vital welfare schemes and developmental initiatives outlined in its annual budgets. Central to Kerala's grievances are concerns over a lowered borrowing limit imposed by the Union, potentially precipitating a severe financial crisis with the state urgently requiring around Rs 26,000 crore to meet its financial obligations.

In a written note submitted to the court, the union government defended its actions as essential measures aimed at safeguarding macroeconomic stability. Attorney General Venkataramani, on behalf of the Centre, emphasised the potential ramifications of unchecked state borrowing on the nation's credit rating and overall financial stability. The Union's stance rests on the premise that broader economic concerns necessitate centralised oversight to prevent fiscal imprudence at the state level.

However, the Kerala government, in an affidavit, vehemently opposed this narrative, arguing that the Constitution grants states autonomous authority over their public debts. The state's response challenges the Union's interpretation of Article 293, contending that the consent mechanism outlined in the provision primarily serves to protect the Union's position as a creditor, rather than conferring overarching powers to regulate state borrowing.

Not only this, Kerala countered the Union's assertions of fiscal mismanagement, citing its robust investments in social sectors like health and education, which have contributed to the state's commendable human development indices. The state government also critiqued the Union's fiscal track record, highlighting reports indicating India's precarious debt-to-GDP ratio and stagnant credit ratings.

Case Details

State of Kerala v. Union of India | Original Suit No. 1 of 2024

Centre Open To Talks With Kerala On Issue Of Borrowing Limits : AG Tells Supreme Court

Awstika Das

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