SC asks Centre, Kerala to hold meet over funds disbursal | Latest News India - Hindustan Times
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SC asks Centre, Kerala to hold meet over funds disbursal

ByAbraham Thomas, New Delhi
Feb 14, 2024 08:56 AM IST

The court was hearing an application by Kerala that said it had no money to clear outstanding salaries, pensions and provident fund for employees and for other beneficiaries under various welfare schemes

The Centre and Kerala decided to hold a meeting on an immediate disbursal of over 26,000 crore to the southern state and inform its outcome by Monday to the Supreme Court, which suggested both governments on Tuesday to find a solution through talks while hearing a lawsuit filed by the Kerala government challenging curbs on its borrowings imposed by the Union finance ministry in March last year.

The Centre and Kerala decided to hold a meeting on an immediate disbursal of funds. (ANI)
The Centre and Kerala decided to hold a meeting on an immediate disbursal of funds. (ANI)

The court was hearing an application by Kerala that said it had no money to clear outstanding salaries, pensions and provident fund for employees and for other beneficiaries under various welfare schemes.

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“These are issues which can be sorted out by negotiation,” a bench headed by justice Surya Kant said, as it took up the matter early in the day and asked attorney general R Venkataramani to take instructions whether the Centre will be open to resolving the issue through dialogue and inform the court by 2pm.

“The suggestion from this court has been given the highest regard and the government is open for a meeting,” Venkataramani told the court after lunch. “There could be an open dialogue and whatever is the outcome, we can inform the court.”

“The way the Centre has responded is very positive. This itself is cooperative federalism,” said the bench, also comprising justice KV Viswanathan. “We will keep this matter for directions on Monday.”

The state was represented by senior advocate Kapil Sibal and advocate general K Gopalakrishna Kurup, who pointed to the urgency and said the state finance secretary is willing to fly down and have a meeting on Wednesday.

“We want to enable both sides time as they will have their own reasons. Instead of telling us your urgency, you must convince them. Whether it is the Centre or state, they are seasoned administrators. We are confident they will be able to handle the issue,” the bench remarked while posting the matter for February 19.

Sibal requested for hearing to be advanced to Friday, but the bench was uncertain whether a solution could be arrived by then.

The lawsuit filed by the Pinarayi Vijayan government challenged two letters issued by the Union finance ministry 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 on the state by limiting borrowings from all sources, including open market borrowings.” It further reduced the ceiling by including some aspects under “borrowing” that were not contemplated under the constitutional scheme.

Both the Centre and state governments have filed responses in the matter, with the Centre claiming that the financial edifice of the state has several cracks. In response, Kerala stated that the Union government has a dismal record in reigning in its debt. While the hearing on the lawsuit would require elaborate hearing, the state moved an application requiring funds worth 26,226 crore towards settling outstanding dues of pension, dearness allowance and payouts under the state-run welfare schemes.

“If this fund is not received, there will be issues in releasing provident fund, pensions and (parliamentary) elections will soon come,” Sibal said. He welcomed the court’s suggestion to have a dialogue and said the state finance secretary will meet Union finance minister Nirmala Sitharaman by evening.

Earlier in the day, Venkataramani opposed the application, claiming that it could raise “wide economic issues” having repercussions on Centre-state relations across the country. “In a matter of policy, lines have to be drawn. It raises a macroeconomic issue,” the top law officer said.

Despite getting these funds, the state will still be in deficit, Sibal said. “Don’t say it is a policy issue and it will disturb the economy. The finance commission has said our debts are within limits.”

Additional solicitor general N Venkataraman, also appearing for Centre, said the March order was issued after carrying out a detailed exercise. “The order under challenge has a long data how it was introduced. It is not the government which took the call. The decision was taken by two constitutional bodies, the Comptroller and Auditor General and the Finance Commission,” he said.

Responding to these arguments in the morning, the bench observed, “We are not asking you to tinker with fiscal policy. We know decisions cannot be taken for just one state. But we think that being the Union government, cordiality can be one thing that works for the country.”

Before asking the Centre to take instructions, the court said that the suggestion for talks should not be an “empty formality” but should carry possibility of a headway. The bench will assembly on Monday afternoon to be apprised of the outcome of the meeting. The details of when and where the meeting is to be held were left to be worked out between the respective governments.

The state had submitted a response to court on February 9 where it provided a rebuttal to a note of January 25 submitted by the attorney general. The Centre has deprived Kerala of resources to the tune of R 1.07 lakh crore during 2017-24 due to the curbs imposed by the Centre, Kerala 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 said.

“Kerala has been one of the most financially unhealthy states and its fiscal edifice has been diagnosed with several cracks,” Venkataramani’s note had said. Provising data to illustrate its point, it said the revenue deficit in Kerala as percentage of gross state domestic product was 3.17% in 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 2.8%. It even commented adversely on the dismal rate of capital expenditure, being an indicator of overall growth.

In response, the state presented reports by international monetary organisations and agencies. “The note seems to present the debt of the states as the greatest vulnerability for ‘sound public financial management’ diverting attention from the fact that the Union has grossly underperformed in its management of public finances – even in comparison to several emerging countries,” the state said in its rebuttal. “Consequently, it has to be inferred that the Union poses a much greater serious threat to macroeconomic stability of the country than all the states of India put together.”

The suit filed by Kerala raised a fundamental issue of fiscal federalism. “The orders and amendment create unconstitutional limits and impediments on the state to borrow and regulate its own finances, therefore violating the provisions and principles of fiscal federalism under the Constitution,” it said.

Kerala is not the lone state at war with the Centre for being denied sufficient funds. The southern states of Karnataka and Tamil Nadu have voiced similar concerns and staged a demonstration in the capital with Kerala chief minister Pinarayi Vijayan in attendance.

Hours after the Centre on Tuesday told the Supreme Court that it was open to discussions with Kerala to resolve the dispute over the state’s financial problems, the ruling Left government constituted a four-member team to hold talks, officials aware of the matter said.

The four-member team would be headed by state finance minister KN Balagopal and will also include KM Abraham, the chief principal secretary to CM, principal secretary, finance Rabindra Kumar Aggarwal and Advocate General K Gopalakrishna Kurup, they said.

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