Will allow Kerala to borrow Rs 5,000 cr as exceptional measure: Govt to SC

The Centre told the Supreme Court on Wednesday it is ready to allow the Kerala government to borrow Rs 5,000 crore, subject to certain conditions, to deal with the financial issues facing the state as a "very special and exceptional measure".

However, the Kerala government said Rs 5,000 crore "does not take us anywhere" and the absolute minimum requirement stood at Rs 10,000 crore.

The Centre's statement came a day after a bench of Justices Surya Kant and K V Viswanathan asked it to consider providing a one-time bailout package to Kerala by March 31 to deal with the resource crunch.

The apex court was hearing a suit filed by the Kerala government accusing the Union of India of interfering in the exercise of its "exclusive, autonomous and plenary powers" to regulate the state's finances by imposing a ceiling on borrowing.

"However, giving utmost consideration to the suggestion of the court, as a very special and exceptional measure, not to be used or cited as a precedent by any other state or on any other occasion, to help the state of Kerala to tide over its financial crisis and meet the ends of the financial year liability of payment of pension, salary and other committed expenditure, if the court so desires, the Government of India is ready to give a consent for a borrowing of Rs 5,000 crore subject to the following conditions," Additional Solicitor General (ASG) N Venkataraman, appearing for the Centre, said.

Elaborating on the conditions, the ASG, who read out a note placed before the bench, said this Rs 5,000 crore will be deducted from the net borrowing ceiling of Kerala for the first nine months of financial year 2024-25 and no ad-hoc borrowing will be granted for the financial year.

He said one of the conditions will be that the consent for borrowing in 2024-25 will only be issued on receipt of prescribed information and documents from the Kerala government and the state shall submit the plan B it has announced in its budget for the financial year for raising resources and improving the fiscal position.

The ASG said the state will put the plan into action before grant of borrowing consent for the last quarter of 2024-25.

Senior advocate Kapil Sibal, appearing for Kerala, said, "This is somewhat difficult for us."

He said the note given by the ASG was on the assumption that the state is not entitled to borrow.

"It is on the assumption that our suit should be dismissed. Therefore, they are giving up some borrowing to be adjusted in the next financial year and also controlling our expenditure. That can't possibly be the basis because Rs 5,000 crore does not take us anywhere," Sibal said.

"The absolute minimum is Rs 10,000 crore and without any adjustment," he said.

The bench observed that the note submitted by the ASG reflected there were deliberations and there was due application of mind, and the court appreciates these efforts.

"Mr Sibal, they have come out with some kind of reasoning about your this year's fiscal management (2023-24). What is your position and what is being projected in the next year?" the bench said.

"Now, within the framework of this note and within the terms and conditions which are there we can only say that you now want to persuade them from Rs 5,000 crore to Rs 10,000 crore. So, you can go as per those negotiations. In the meanwhile, take Rs 5,000 crore," the bench told the senior advocate.

Sibal urged the bench to list the matter next week and said under the recommendations of the Finance Commission, the state is entitled to this money.

"You are asking us to pass an interim order which is ultimately your final relief which you are seeking?" the bench quizzed Sibal.

The ASG said the Centre was also ready for the hearing, after which the court listed the matter for March 21.

During the hearing on Wednesday, the ASG said the Centre has adopted a uniform, non-discriminatory approach for issue of consent for borrowing.

He said in the next financial year 2024-25, the net borrowing ceiling of Kerala, as per the recommendations of the 15th Finance Commission, is three per cent of the Gross State Domestic Product (GSDP).

The ASG said if the consent for borrowing Rs 15,000 crore demanded by the state is given in advance in March 2024, Kerala will be left with a borrowing space of only Rs 6,664 crore to meet its requirements for the first nine months of 2024-25.

"Going by the expenditure trend of state of Kerala, it will be extremely difficult for the state government to manage its finances with the borrowing of Rs 6,664 crore in the first nine months of financial year 2024-25," he said.

He said in financial year 2023-24, the state was given a total borrowing consent of Rs 21,852 crore for the first nine months on an average of Rs 2,428 crore per month.

"However, this was exhausted by the state within the first six months of the financial year at an average of Rs 3,642 crore per month," he said, adding, "Therefore, given its past expenditure trend, the state government of Kerala would not be able to manage in Rs 6,664 crore for the first nine months, that is Rs 740 crore per month."

The ASG said this will, in all probability, trigger serious hardships for the people of Kerala.