Kerala-Centre Borrowing Dispute: Supreme Court Refuses To Grant Interim Relief To State

The Supreme Court on Monday refused to grant interim relief to the Kerala government on a plea seeking to direct the central government to relax its borrowing limits.

The top court said that at this stage, the balance of convenience lies in the favour of the central government.

A substantive relief has been granted to the state, through the intervention of the apex court, it said.

"During the course of the hearing, the Union has already made an offer for additional borrowing to the tune of Rs 13,608 crore," the court said.

The court remarked that even if its is assumed that Kerala's financial hardship is due to the Union government, during the course of hearing of this interim application, the concerns have been assuaged to some extent, so as to bail out the state from its financial crisis.

However, the court clarified that these observations have been made only for the purposes of adjudicating on the aspect of an interim relief.

The court said that the main dispute pertains to Article 293 (which deals with borrowings by the state), has not yet been substantially interpreted by the top court.

As a result, it referred the matter for a final adjudication to a constitution bench comprising five judges.

The case pertains to a plea filed by Kerala against the central government, accusing it of imposing a net borrowing ceiling, which limits the state's borrowings from all sources, including open-market borrowings.

According to the plea, the reduction in borrowing limits will have an extremely deleterious impact and cause long-term economic damage to the state, which will be irremediable in the short, or even medium term.

The plea states that Kerala has suffered a cumulative expenditure loss or resource deficiency of nearly Rs 1.07 lakh crore during fiscal 2016–23.

It is estimated that over a period of the next five years, the net negative impact on Kerala's economy could be as high as Rs 2–3 lakh crore, with FY17 as the base year. This represents 20–30% of Kerala's current gross domestic product over a six-year period, the plea notes.

The case came up before the top court multiple times in the past month and the court repeatedly requested the Union and the state to resolve the matter through negotiations.

However, the negotiations bore no fruit and the court had to hear the dispute at length before reserving its verdict in the matter.