The Supreme Court on Tuesday urged the Centre to consider rescuing Kerala from its severe financial crisis with a special package in the current fiscal year even as the Centre maintained that as a matter of principle, bailout packages were turned down for other states too.
“We are not experts. We won’t be able to tell you the way out but perhaps your experts can... Let your experts explore the possibility. See if you can be slightly liberal in relaxing your norms and give a one-time package before March 31, subject to more stringent conditions in the next financial year,” a bench of justices Surya Kant and KV Viswanathan told the Centre, as it heard the southern state’s suit against the borrowing restrictions.
The suggestion from the bench 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.
Appearing for the Centre, attorney-general (AG) R Venkataramani and additional solicitor-general (ASG) N Venkatraman said the Centre has done “whatever was doable”. Venkatraman informed the bench that the Centre has proposed allowing borrowing another ₹5,000 crore on April 1.
{{/usCountry}}Appearing for the Centre, attorney-general (AG) R Venkataramani and additional solicitor-general (ASG) N Venkatraman said the Centre has done “whatever was doable”. Venkatraman informed the bench that the Centre has proposed allowing borrowing another ₹5,000 crore on April 1.
{{/usCountry}}“On 14 other occasions with different states and different political parties, we have said we cannot give bailout package...as a matter of principle. If we allow it for one state, we will have to do it for everyone...we have already done our best in so far Kerala is concerned,” the ASG submitted.
The AG added that it was not a case where there was no application of mind by the Centre or any resistance to applying its mind, especially after the Supreme Court’s suggestion on March 6.
On the court’s poser, if a one-time exception can be made for Kerala this time, the law officers said that the step would end up dividing states based on their approaching courts.
“We will place all the materials before the court, including the request for a bailout package by another southern state which wrote to us in January. In this case, the request for a bailout package is more than 100% of their budget package...the mismatch is huge. We can show that we have declined similar requests for many other states, and it is not that we are against this particular state,” Venkatraman said.
The bench remarked: “We don’t have the slightest doubt on your bona fide that you would not want to help the state. We are asking you to explore the possibility of doing something for the current financial year and the amount can be set off from their entitlement in the first quarter of the next financial year...Do something as a special case.”
The law officers said that they would consult the competent authorities and come back with a response to the court’s suggestion. The matter is likely to be taken up again on Wednesday.
The bench was hearing a plea filed by the Kerala government, claiming it has no money to clear outstanding arrears of salaries, pension, and provident fund for state employees and for other beneficiaries in the state under various welfare schemes.
The Pinarayi Vijayan government has challenged 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.”
The Centre has argued that the financial edifice of the state has several cracks. It has given statistics to show the revenue deficit in Kerala as a percentage of gross state domestic product (GSDP) to be 3.17% for 2021-22, higher than the all-states average of 0.46%, and the fiscal deficit rate for Kerala to be 4.94% compared to an all-state average of 2.80%.
The suit filed by Kerala also 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 argued.
Over the previous hearings, the court advised the Kerala government to exercise prudence in fiscal matters while imploring the Centre to relax its norms to enable the state to tide over the current crisis.
On March 6, the bench suggested that the state should accept the Centre’s proposal to borrow an additional ₹13,608 crore for the time being, subject to meeting certain stipulations. At the same time, it added the Centre should not put the withdrawal of the suit by Kerala as a precondition for allowing additional borrowing.