Interim relief refused; Case referred to Constitution Bench
Rejimon Kuttappan
Thiruvananthapuram: The Kerala Government led by Pinarayi Vijayan seems to be fighting a ‘losing battle’ with the Centre at the Supreme Court seeking a larger borrowing freedom to manage the state’s affairs.
The Supreme Court that declined to grant interim relief on Monday and referred Kerala’s suit challenging the central government’s stand on state’s borrowing limit to a Constitution Bench.
The Supreme Court while referring the case to a Costitution Bench is said to have weighed the globally approved three-pronged golden principles – the test of prima facie case, interim relief, and irreparable injury.
The state has always advocated for higher borrowing limits despite the existence of the decades-old stipulation laid out by the Fiscal Responsibility and Budget Management (FRBM) Act aiming to achieve fiscal stability and a balanced budget.
In December, Kerala had approached the Supreme Court, accusing the Centre of encroaching into its fiscal affairs. The state had asserted that certain directives issued by the Union Ministry of Finance were inhibiting its ability to fulfill budgetary commitments, thereby imperiling vital welfare schemes and developmental initiatives outlined in its annual budgets.
Central to Kerala’s grievances were the concerns over a lowered borrowing limit imposed by the central government, potentially precipitating a severe financial crisis with the state urgently facing a financial requirement of around Rs26,000 crore to meet its financial obligations during March, the last month of the financial year.
However, in a written note submitted to the Court, the Union government defended its actions as essential measures aimed at safeguarding macroeconomic stability.
It emphasized the need to establish financial discipline in the country’s borrowing system in order to help maintain a healthy credit rating and overall financial stability.
“Kerala has not been able to establish at this stage that even after adjusting the over-borrowings of the previous year, there is fiscal space to borrow,” the court observed.
Kerala had argued that if the interim injunction was not granted, the state was likely to face extreme financial hardship on account of its pending dues.
As against this, the Defendant – central government, highlighted the grave consequences to the fiscal health of the country if Kerala was allowed an interim relief in this regard.
The central government argued that additional borrowing by Kerala will have spill-over effects and could raise the borrowing cost in the country, possibly crowding out the borrowing by private investors.
Since the central government borrows money from outside the country and lends money to the state governments, borrowings of the states are intricately linked to the creditworthiness of the country in the international market.
The central government argued that if the states are allowed unbridled borrowing, it may negatively impact the macro-economic growth and stability of the entire nation.
