Kerala turns down Centre’s proposal to borrow ₹5,000cr

The state has claimed it lacks funds to clear outstanding arrears of salaries, pension, and provident fund for state employees, and for other beneficiaries in the state under various welfare schemes of the government

The Kerala government on Wednesday turned down a proposal by the Centre that the state could borrow an additional ₹5,000 crore in the current fiscal year as a “one-time exception”, choosing to argue its suit against the Centre’s borrowing cap restrictions in the Supreme Court.

The Pinarayi Vijayan state government contended before a Supreme Court bench of justices Surya Kant and KV Viswanathan that the strict conditions imposed with the Centre’s proposal were unacceptable to it. (ANI)

The state government contended before a bench of justices Surya Kant and KV Viswanathan that the strict conditions imposed with the Centre’s proposal were unacceptable to it, in addition to the fact that approval for an additional borrowing of ₹5,000 would not help it weather the impending financial crisis.

Recording the state government’s statement, the bench fixed the matter for a detailed hearing on March 21, when the Pinarayi Vijayan government will press for staying the operation of two letters issued by the Union finance ministry last year and certain amendments made to the Fiscal Responsibility and Budget Management Act in 2018 for “imposing a net borrowing ceiling (NBC) on the state by limiting borrowings from all sources, including open market borrowings”.

On Tuesday, the bench urged the Centre to consider rescuing Kerala from its severe financial crisis with a special package in the current fiscal. The suggestion from the court came after senior counsel Kapil Sibal, representing the Kerala government, submitted that while the state has accepted the Centre’s proposal to borrow an additional ₹13,608 crore for the time being, its request for an additional ₹19,000 crore was shot down in the last meeting.

After the court’s nudge, additional solicitor general (ASG) N Venkatraman, appearing for the Centre, said that although the Centre has already done “whatever was doable”, it would still consider the suggestion and revert.

As the proceedings on Wednesday commenced, the ASG read out a note, stating: “As a very special and exceptional measure, not to be used or cited as a precedent by any other state or on any other occasion, in order to help the State of Kerala to tide over its financial crisis and meet its financial liabilities, if the court should desire, the Government of India is ready to give its consent for borrowing of ₹5,000 crore.”

Simultaneously, the law officer highlighted a set of conditions, including that the amount of ₹5,000 crore amount will be deducted from the net borrowing ceiling of Kerala for the first nine months of the next financial year (FY), 2024-25; no ad hoc borrowing shall be granted for the next FY; consent for borrowing in the next FY will only be issued on receipt of prescribed information and documents from the state government and that the consent for borrowing to Kerala in the first nine months of 2024-25 will be issued on a quarterly basis for up to 25% of the eligibility arrived at after deducting the early special concession of ₹5,000 crore.

ASG Venkatraman further emphasised that the total borrowing for Kerala for the first nine months of FY 2024-25 comes to be around ₹21,663 crore, and if an advance of ₹15,000 crores is given early, the state will be left with only ₹6,664 crore. “It will be extremely difficult for the state government to manage with this, especially given its past expenditure pattern. This will, in all probability, trigger hardships for the people of Kerala,” he added.

Sibal responded that the state cannot accept the Centre’s proposal with the set of caveats, and under an assumption that the state was not entitled to borrow further under the present regime. “They cannot assume and we are not entitled to borrow and then they say that they will control our expenditure. If there is an irreparable injury caused to us, balance of convenience lies in our favour and I have a legal right, I should get a hearing,” he argued.

The bench said that it will grant a hearing to the state’s application on March 21, adding that it will also delve into the pertinent points of law as to whether the issue of fiscal borrowing is within the parameters of justiciability or not.