Senior advocate Kapil Sibal, representing the state, rejected the proposal and said the state would need a minimum of ₹10,000 crore. He argued that the concession suggested that Kerala was not entitled to additional borrowing. ” ₹5,000 crore will not take us anywhere; we need at least ₹10,000 crore. They are saying this on the assumption that the suit is liable to be dismissed,” Sibal said.

The union government said its offer came with strict conditions to prevent it from setting a precedent for other states to approach courts for similar packages. “In view of the court’s suggestion, we can allow ₹5,000 crore that will be deducted from the net borrowing ceiling for the first nine months… subject to certain conditions,” said additional solicitor general N Venkataraman.

The offer was prompted by a suggestion from a bench comprising Justices Surya Kant and KV Viswanathan, hearing a lawsuit filed in the Supreme Court by the Kerala government. The court urged the union government to consider this a special case and provide Kerala with a one-time package by 31 March. Both sides admitted that negotiations failed after rounds of talks and asked the court to hear the case in detail before passing an interim order. The court scheduled a detailed hearing for 21 March.

During the hearing on Wednesday, Venkataraman presented a note from the union government offering Kerala permission to borrow ₹5,000 crore to alleviate its financial crisis. According to the note, the borrowed amount would be deducted from Kerala’s net borrowing ceiling for the first nine months of FY25, with no ad hoc borrowing permitted for the entire fiscal year. Consent for borrowing in FY25 would only be granted on the submission of specified information and documents by the state government.

The note added that borrowing in the first nine months of FY25 would be issued quarterly, up to 25% of the eligible amount, after deducting the early special concession of ₹5,000 crore. Additionally, Kerala would have to submit and implement its proposed ‘Plan B’ to enhance revenue and stabilise its financial position before being allowed to borrow in the last quarter of FY25, it said.

Venkataraman expressed doubts about the adequacy of the allocated sum, citing Kerala’s historical spending patterns. He argued that granting the requested ₹10,000 crore could worsen the state’s financial condition. He also highlighted concerns that states could cite this as a precedent to seek additional funds, potentially leading to similar financial crises elsewhere.

The Kerala government’s lawsuit contended that the finance ministry had imposed a net borrowing ceiling on the state, restricting its borrowings from all sources, including from the open market. In response, the union government said any financial stress faced by the state was due to mismanagement.

It said “substantial financial resources” had been provided to the Kerala government from FY21 to FY24, over and above the amount recommended by the 15th Finance Commission. One of these was the payment of ₹14,505 crore as a “back-to-back loan to meet GST compensation shortfall”. It emphasised that public finance management had a bearing on India’s credit rating.

In December, finance minister Nirmala Sitharaman clarified in a reply in Parliament that there was no proposal for FY24 to relax the rules on the capacity of state governments, including Kerala’s, to borrow funds.

Milestone Alert!
Livemint tops charts as the fastest growing news website in the world 🌏 Click here to know more.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it’s all here, just a click away! Login Now!

Published: 13 Mar 2024, 01:43 PM IST