New Delhi: In the ongoing spar over funds, the Supreme Court on Wednesday asked Kerala to take the Centre's offer of a conditional borrowing of Rs 5,000 crore, which the southern state declined, citing the 'stringent conditions' that came along with it.
The Centre submitted a note in the Supreme Court detailing why any more additional borrowing to Kerala in Financial Year (FY) 2023-24 was "neither prudent nor in the interest" of the state government, and apprised the apex court that it is ready to allow the Kerala government to borrow Rs 5,000 crore, subject to certain conditions.
Additional Solicitor General (ASG) N Venkataraman, representing the Centre, submitted before a bench comprising Justices Surya Kant and K V Viswanathan that giving utmost consideration to the suggestion of the court, as a very special and exceptional measure, to help the state of Kerala to tide over its financial crisis, and meet the end-of-the financial year liabilities of payment of pension, salaries and other committed expenditure, if the court so desires, the government is ready to give a consent for a borrowing of Rs 5,000 crore.
The ASG said it will be subject to the conditions that this Rs 5,000 crore will be deducted from the Net Borrowing Ceiling (NBC) of Kerala for the first nine months of FY 2024-25. Also, no ad-hoc borrowing will be granted to the state in FY 2024-25 and consent for borrowing in 2024-25 will only be issued on receipt of the prescribed information and documents from the State Government
The Centre’s note said going by the expenditure trend of Kerala, it will be "extremely difficult" for the state government to manage its finances with borrowing of Rs.6,664 crore in the first nine months of the FY 2024-25. The note added that it is important to note that in FY 2023-24, the state was given total borrowing consent Rs.21,852 crore for the first 9 months of the financial year i.e. on an average Rs.2,428 crore per month.
“However, this was exhausted by the State within the first 6 months of the financial year at an average of Rs.3,642 crore per month. 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 9 months i.e. @ Rs.740 crore per month. This will in all probability trigger serious hardships to the people of Kerala”, it said.
In the next FY, 2024-25, the NBC of Kerala as per the recommendations of 15th Finance Commission is 3% of the Gross State Domestic Product (GSDP). The projected GSDP of Kerala for 2024-25 is estimated as Rs.11,19,906 crore.
The note said, “Thus, based on the projected GSDP, the net borrowing ceiling of Kerala for FY 2024-25 comes to Rs.33,597 crore. Out of this, deduction of Rs.4,711 crore is to be made for off-budget borrowing done by the State in FY 2021-22. Consequently, the Net Borrowing Ceiling (NBC) of the State for 2024-25 will be Rs.28,886 crore”.
“Consent for 75% of the total borrowing ceiling is to be given to the State in the first nine months of the financial year which comes to Rs.21,664 crore. If out of this amount, consent for borrowing of Rs.15,000 crore demanded by the Plaintiff State is given in advance in March, 2024, the State will be left with the borrowing space of only Rs.6,664 crore to meet its requirements for the first nine months of 2024-25”, said the note.
During the hearing, senior advocate Kapil Sibal, representing 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 ASG said the Centre has adopted a "uniform, non-discriminatory" approach for the issue of consent for borrowing.
The Centre’s response came a day after the apex court asked it to consider providing a one-time bailout package to Kerala by March 31 to deal with its financial crisis. Elaborating of conditions on giving consent for borrowing of Rs 5,000 crore, the ASG said consent for borrowing to Kerala in first nine months of 2024-25 will be issued on quarterly basis for up to 25% of the eligibility arrived at after deducting the special early consent of Rs 5,000 crore, per quarter.
“Government of Kerala will submit the Plan-B it has announced in its Budget of 2024-25 for raising resources and improving financial position of the State and will put that plan into action before grant of borrowing consent for the last quarter of 2024-25”, he added.
Sibal 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...That can’t possibly be the basis because Rs 5,000 crore does not take us anywhere,” Sibal said, adding that the absolute minimum is Rs 10,000 crore and without any adjustment.
The bench said that the note submitted by the ASG reflected there were deliberations and the court appreciates these efforts. “Mr Sibal, they have come out with some kind of reasoning about this year’s fiscal management (2023-24). What is your position and what is being projected in the next year?” said the bench.
Referring to the note, the bench told Sibal, “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….” However, Sibal said that under the recommendations of the Finance Commission, the state is entitled to the money and requested the court to list the matter for hearing next week. The ASG said the Centre is also ready for the hearing.
“The Central Government is also not clear that if the request of the State of Kerala is agreed to, how would we deal with request of other States if they cite this as a precedence for relaxation of guidelines and if their request is not considered, approach the Court on grounds of discrimination," said the Centre’s note.
After hearing submissions, the apex court has scheduled the matter for further hearing on March 21. The top court was hearing a suit filed by the Kerala government alleging Centre of interfering in the exercise of its “exclusive, autonomous and plenary powers” to regulate the state’s finances by imposing a ceiling on borrowing.
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