SC reserves verdict on raising Kerala’s borrowing limits

TRIVANDRUM: The Supreme Court on Friday reserved its verdict on Kerala’s plea challenging the federal restrictions on borrowings by the state governments.

Under the fiscal responsibility law, states can borrow an amount equivalent to three per cent of their gross domestic product annually. Kerala has far exceeded this limit.

The southern state is now siting on a public debt of around 4.5 trillion rupees, and it spends Rs 750 billion on debt servicing, including Rs 260 billion interest annually.

The federal government opposed the demand for additional funds, saying it borrowed money to pay salaries and pensions instead of investing in profitable ventures.

A bench of Justices Surya Kant and KV Viswanathan was hearing the arguments to resolve the state’s urgent financial needs before the end of the current fiscal year.

The state justified the overspending, citing its “uniquefinanciallandscape”andsubstantialinvestments in critical sectors like health and education.

The court urged both governments to talk to each other to resolve the crisis, but two rounds of talks failed ater stumbling upon the quantum of borrowing to be allowed.

The federal government initially agreed to an additional borrowing of Rs 136.08 billion on the condition that Kerala withdrew its suit.

However, the judges held that the federal government could not raise such a condition for a bailout package.

Kerala also submited that Rs 136 billion would only cover a fraction of Kerala’s immediate financial requirements and demanded Rs 193 billion needed urgently. The federal government agreed to allow an additional borrowing of Rs 50 billion on several conditions, including a deduction in the next year’s borrowing.

Kerala rejected this proposal, too, with its lawyer Kapil Sibal maintaining that the amount was hardly adequate to meet essential obligations, including pay revisions.

Sibal then appealed to the top court for interim relief for the fiscal year ending March 31, the verdict of which was now reserved by the judges.

Additional Solicitor General N Venkataraman accused Kerala of presenting fudged data and insisted that the state had consistently overborrowed in recent years.

Kerala’s revenue deficit indicates an unsustainable financial situation and indiscriminate borrowing beyond the limit has cast doubts about macroeconomic stability.