The State of Kerala v. Union of India

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The State of Kerala v. Union of India

This case will decide whether the Union can impose a borrowing limit on states.

Petitioners Arguments

Under Article 293 of the Constitution, the Union of India does not have the power to regulate all the borrowings of a State and conditions can be imposed only on the loans sought from the Central Government. The liabilities arising out of the Public Account and State-Owned Enterprises cannot be included in the borrowings of the Plaintiff. The plaintiff is in dire need of INR 26,226 crores to pay dues arising out of various budgetary obligations including dearness allowance, pension scheme, subsidies, etc. There has been an underutilization of permissible borrowing space from previous years, which the plaintiff should be allowed to use. The over-borrowing from the years before F.Y 2023-24 cannot be adjusted from the Net Borrowing Ceiling of this F.Y and must instead be repaid at the date of maturity of such borrowing.

Responders Arguments

Since management of public finance is a national issue, the Union of India has the power to regulate all the borrowings of the plaintiff to maintain the fiscal health of the country. The liabilities arising out of the Public Account and State- Owned enterprises can be included in the borrowings of the plaintiff since they may be used to by-pass the borrowing ceiling. The pending dues have arisen on account of the fiscal mismanagement by the state of kerala and are not a consequence of regulation of borrowing by the Union of India. The Plaintiffs contention regarding the under-utilized borrowing space from the previous years is based on erroneous facts. The over-borrowing done in a F.Y has to be adjusted against the borrowing amount of the next F.Ys. The fiscal health of the country will be jeopardized if the plaintiff is allowed to undertake more debt.

Last Listed On

2024-04-01

Start Date

2024-04-01

Card Stage Date

2024-04-01

Review Petition No

Original Suit 1/2024

Case Status

Pending

Bench Status

Not Constituted

Subject Matter

Constitution

Pendency

2 years, 2 months, 29 days

5 Judge Bench

Reference to larger bench

Consider As Stage Of Pendency

true

Date of institution of case

Date of reference to 5 Judge Bench

This matter was brought by the State of Kerala against the Union government for imposing Net Borrowing Ceiling (NBC) limit on the amount the state can borrow from the Consolidated Fund. On 28-03-2018, Section 4 of the Fiscal Responsibility and Budget Management Act, 2003 was amended by the Union government. The amendment introduced the concept of a “general government debt” which is an aggregate of the Union’s debt and total debt of the state governments. The 2018 amendment also required the Union to ensure that the general government debt does not exceed 60 percent of the Gross Domestic Product. In pursuance of that, the Union issued a series of letters to the State of Kerala imposing a limit on the “maximum possible” amount that the Kerala government could borrow from the Consolidated Fund of the state, under Article 293 . In response to that, the Kerala government brought this action against the Union under Article 131 of the Constitution.

Does Article 293 of the Constitution vest a State with an enforceable right to raise borrowing from the Union government and/or other sources? If yes, to what extent such rights can be regulated by the Union Government? Can the borrowing by the State-Owned Enterprises and liabilities arising out of the Public Account be included under the purview of Article 293(3) of the Constitution? What is the scope and extent of Judicial Review exercisable by this Court with respect to a fiscal policy, which is purportedly in conflict with the object and spirit of Article 293 of the Constitution?

Amendment to Section 4 of the Fiscal Responsibility and Budget Management Act, 2003

Article 293 of the constitution of India

Since Article 293 of the Constitution has not been subjected to interpretation by the Supreme Court, the judges opined that the matter falls within the ambit of Article 145(3) of the Constitution and therefore has to be placed before a five-judge bench.

NA

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Economic and Political Weekly

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