Supreme Court Referral to Constitution Bench on Kerala's Borrowing Limits

The Supreme Court of India's decision to refer Kerala's challenge against the Centre's borrowing limits to a Constitution Bench underscores the complexity of Centre-State fiscal relations within India's federal structure. This move opens up a significant examination of constitutional and fiscal autonomy of states, especially in light of Article 293.

Key Aspects of the Dispute:

• Centre vs. State Fiscal Autonomy: At the crux of this legal battle is the extent to which the Union government can regulate a state's borrowings without encroaching on its fiscal autonomy, against the backdrop of accusations of fiscal mismanagement.
  

• Constitutional and Legal Frameworks: The focus is on Article 293, which delineates the states' executive power to borrow money subject to conditions prescribed by the state legislature and the Union's consent for further borrowing.
  

• Impact of Borrowing on Public Finance: Kerala's suit raises concerns over the inclusion of state-owned enterprises' borrowings and public account liabilities in the 'Net Borrowing Ceiling', challenging the 2018 amendment to the Fiscal Responsibility and Budget Management Act.

Implications for Centre-State Relations:

• National vs. State Fiscal Health: The case presents a nuanced debate between maintaining national fiscal health and ensuring sufficient fiscal space for states to manage their finances independently.
  

• Revenue Distribution and Fiscal Space: The current revenue distribution formula and the implementation of a common Goods and Services Tax (GST) system highlight the tensions in fiscal relations, especially for states like Kerala, known for high social advancement.

The Role of the Supreme Court:

• The referral to a Constitution Bench signifies the Supreme Court's recognition of the broader constitutional implications of this dispute, beyond mere fiscal policy disagreements.
  

• The Court's eventual decision will likely set a precedent on the balance of fiscal powers between the Centre and states, potentially reshaping India's fiscal federalism landscape.

Additional Information to Remember:

• This legal battle is emblematic of ongoing tensions in Centre-State relations, especially regarding fiscal management and autonomy.
  

• The outcome of this case could influence future negotiations and legislation on fiscal responsibility, borrowing limits, and revenue sharing between the Centre and states.

Keywords to Remember:

• Article 293: Provides states the executive power to borrow within prescribed limits, requiring Centre's consent for further loans.
  

• Fiscal Responsibility and Budget Management Act: Legislation that includes a cap on general government debt relative to GDP, influencing states' borrowing capabilities.
  

• Net Borrowing Ceiling: A fiscal limit set by the Centre on state borrowings as a percentage of the Gross State Domestic Product (GSDP).

Reason it's important : Fiscal battle: Kerala’s suit raises questions on States’ right to borrow, Centre’s power to limit

Published in : The Hindu

Date appeared in newspaper : 04 April 2024

Link to the article (might require a paid subscription) : https://www.thehindu.com/todays-paper/2024-04-04/th_international/articleGOLCKGKJR-6349725.ece