'Resolve issue through negotiation...' SC tells Centre, Kerala over borrowing limit

The Supreme Court on Tuesday (Feb 13) asked the Centre and Kerala to enter into a dialogue and negotiate to resolve the borrowing limit issue. The SC bench recommended that the finance secretary of Kerala should meet the Union Finance Minister.

New Delhi: Considering a lawsuit that challenges the restrictions placed on states' capacity to borrow money, the Supreme Court on Tuesday asked the Kerala government to join in dialogue to resolve the issues with the Centre. An SC bench comprising Justices Surya Kant and KV Vishwanathan recommended that the finance secretary of the state should meet the union finance minister and resolve the deadlock through negotiation.

Concerning the risks of uncontrolled state borrowing and how it might affect the nation's credit rating as a whole, the Centre had already informed the Supreme Court. Regarding the restrictions placed on the state's ability to borrow money, the Centre declared that "many cracks" have been identified in Kerala's fiscal structure.

Attorney General R Venkataramani argued in a note to the Supreme Court that public financial management is a national problem. According to Venkataramani, the State will drive away private borrowing from the market if it engages in careless borrowing to fund wasteful spending or poorly targeted subsidies. He continued by saying that the Finance Commission's proposals serve as a clear, nondiscriminatory framework for setting state borrowing limitations.

In an original suit filed under Article 131 of the Constitution, the Kerala government has said the Constitution bestows fiscal autonomy on states to regulate their finances under various articles, and borrowing limits or the extent of such borrowings are regulated by state legislation.