SC refuses to grant interim relief to Kerala in the borrowing limits case

Supreme Court

The Supreme Court on April 1 refused to grant interim relief to Kerala in its case against the Centre over borrowing limits, saying the southern state already got substantial relief.

The court, however referred the larger question of whether a state can sue the Centre over fiscal issues to a constitution bench.

The dispute between the two sides reached the top court in December after talks failed to yield results

A bench of justices Surya Kant and KV Viswanathan heard the two sides after Kerala rejected an offer by the Centre, allowing it an advanced and additional borrowing space of Rs 5,000 crore in the current fiscal on the grounds that it is insufficient. The first offer was made in February 2024. Kerala sought an advance borrowing of Rs 15,000 crore.

Timeline of the case 

In its plea, Kerala alleged that the Centre was arbitrarily imposing a net borrowing ceiling, limiting the amount it could raise, leading to an urgent requirement of around Rs 26,000 crore to meet its financial obligations.

The Left Democratic Front (LDF) government has accused the Union finance ministry of imposing a net borrowing ceiling in a manner that limits it from raising funds from all sources, including open market.

The Centre reduced the Net Borrowing Ceiling of the state by introducing aspects into the “borrowing”, which otherwise are not considered “borrowings", it alleged.

The Centre said the Union has long relied on Articles 293 (3) and 294 (4) of the Constitution to control spending and borrowing by states. The limit is recommended by the Finance Commission based on a pre-approved formula.

According to the 15th Finance Commission’s recommendations, the upper limit of states’ borrowings can be set at 3.5 percent of their GSDP for FY24 and FY25. For the current fiscal year, 0.5 percent of the ceiling was linked to power sector reforms.

(This is a developing story, please come back for more)