In SC, Kerala targets Centre over curbs on its borrowing | Latest News India - Hindustan Times
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In SC, Kerala targets Centre over curbs on its borrowing

ByAbraham Thomas
Feb 10, 2024 07:26 AM IST

The Kerala government has accused the Indian central government of imposing borrowing curbs as part of a "misguided and unfair political strategy." The accusation came in response to a note submitted by the Attorney General, accusing the state of being "financially unhealthy." The Kerala government claims that the central government's borrowing limits have deprived the state of resources amounting to INR 1.07 lakh crore ($15 billion) since 2017. The debate over fiscal federalism has been a hot topic, with several states protesting against discriminatory fiscal policies.

New Delhi Facing flak for its lack of fiscal discipline and rise in public debt, the Kerala government has told the Supreme Court that when it comes to reigning debts, Union government has a dismal record, and blamed the Centre for imposing curbs on its borrowing as part of a “misguided and unfair political strategy” ahead of the general elections.

The AG’s note was filed in a lawsuit filed by the Kerala government against orders issued by the Union finance ministry in March 2023 reducing the state’s borrowing limit (ANI)
The AG’s note was filed in a lawsuit filed by the Kerala government against orders issued by the Union finance ministry in March 2023 reducing the state’s borrowing limit (ANI)

The state was responding to a note submitted by the Attorney General (AG) R Venkataramani on January 25 accusing the state to be one of the most “financially unhealthy”, with several cracks in its financial edifice. The AG’s note was filed in a lawsuit filed by the Kerala government against orders issued by the Union finance ministry in March 2023 reducing the state’s borrowing limit.

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The suit will be taken up on February 13 for hearing an interim application filed by the state requiring funds worth 26,226 crore towards settling outstanding dues of pension, dearness allowance and payouts under State-run welfare schemes.

Rebutting the allegations against it, the Kerala government launched a counteroffensive by holding the Centre to be worse off when it comes to managing debts and borrowing loans. “In the part of the note (by Attorney General) titled ‘Poor financial management in Kerala’, the Union attempts to disparage the financial management of the State....On fiscal parameters on debt, deficit and fiscal sustainability the Union performs far worse than the States including the plaintiff state (Kerala),” the state said in its response filed on February 7.

By restricting the borrowing limit of the state, the Centre has deprived Kerala of resources to the tune of 1.07 lakh crores during the period 2017-2024, the note said. “The plaintiff state believes, that is part of a misguided and unfair political strategy that the Defendant Union is adopting, just on the eve of the elections to the Parliament, to force the plaintiff state to a financial crisis and a treasury breakdown,” it added.

According to Kerala government, the Centre accounts for approximately 60% of the total debt or outstanding liabilities of India while all states put together account for the remaining 40% of which “Kerala accounts for a minuscule 1.70-1.75% of the total debt of the Centre and the States put together for the period 2019-2023”. Therefore, the premise that borrowings of the plaintiff state can destabilise the economy is exaggerated, the state said in the note filed through advocate CK Sasi. “The note deliberately overlooks the fact that the Union has a dismal record of reining in its own debt,” it added.

The debate over fiscal federalism has taken the political stage in recent weeks with three states – Karnataka, Kerala and Tamil Nadu -- protesting against the Centre’s discriminatory fiscal policies at Jantar Mantar. On Thursday, the protest also witnessed participation of Delhi chief minister Arvind Kejriwal and Punjab chief minister Bhagwant Mann.

In the note that led to the Kerala response, the AG had said: “Kerala has been one of the most financially unhealthy states and its fiscal edifice has been diagnosed with several cracks.” Giving statistics to illustrate its point, the AG had said that the revenue deficit in Kerala as percentage of gross state domestic product (GSDP) was 3.17% for 2021-22, higher than the all-states average of 0.46%. During the same period, the fiscal deficit rate for Kerala was 4.94% compared to all-states average of 2.80%.

The note highlighted the lack of capital expenditure in the state to be detrimental to growth as the figures for 2021-22 suggested that Kerala spent 8.85% of its total expenditure while the corresponding average for all states was 13.76%.

Defending the statistics, the state government said, “There is nothing unusual about these charts presented by the Union in the Notes that reflect adversely on the performance of the plaintiff state. In fact, the ups and downs of the Union, all the states and the plaintiff state follow the economic cycle in the country.”

The Pinarayi Vijayan government explained that the low spending on capital expenditure was on account of the “development trajectory” selected by the state that focuses more on health, education and welfare of its people. To set apart funds for capital expenditure, the state created Kerala Infrastructure Investment fund Board (KIIFB) as a statutory state-owned enterprise. “However, the Union, dubiously for political reasons, is using the order (issued in March 2023) to jeopardise the operations of this institution,” the state said.

The AG’s note also suggested that KIIFB has no revenue source of its own as the financial statement of the institution for 2021-22 suggested that 93.6% of its total revenue of 6,401 crore was by way of contribution from state government.

The suit filed by the state challenged two letters issued by the Union Finance Ministry (Public Finance-State Division) on March 27 and August 11 last year and amendments made to Section 4 of the Fiscal Responsibility and Budget Management Act, 2003 in March 2018 for “imposing a net borrowing ceiling (NBC) on the state by limiting borrowings from all sources, including open market borrowings.

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