On Monday, the Supreme Court dismissed Kerala’s petition requesting the Central government to ease its borrowing cap restrictions, allowing the state to borrow additional funds in the current fiscal year.
A bench of Justices Suryakant and KV Vishwanathan referred the Kerala government’s challenge against the Centre’s decision to limit states’ borrowing capacity to a five-judge constitution bench for adjudication.
The court declined to issue an interim direction on the matter, citing Kerala’s receipt of a Rs. 13,608 crore grant from the Center after filing the petition.
In framing questions for the constitution bench, the current bench preliminarily observed that if a state overborrows from the Center, subsequent payouts by the Union may be reduced, and the balance of convenience favors the Union.
During the hearing, it was noted that Article 293 of the Constitution, pertaining to state borrowing, has not been definitively interpreted by the court. Therefore, the questions raised in the suit are referred to a five-judge bench for resolution.
Article 293 empowers states to borrow within India’s territory, subject to limits set by their legislatures. It also stipulates that a state cannot raise a loan without the consent of the central government if any part of a previous loan from the Centre remains outstanding.
The case originated from Kerala’s plea seeking interim relief to access funds from the Centre after failed negotiations between the two parties.
In its plea, Kerala accused the Centre of unwarranted interference in its finances, hindering the state from fulfilling its annual budget commitments. This interference, the state argued, led to substantial arrears owed for welfare schemes, particularly affecting vulnerable groups, state employees, pensioners, and state-owned enterprises.
