Financial crunch | Why Kerala has moved SC against Centre: CM Pinarayi Vijayan explains

Vijayan urged the Centre to refrain from encroaching on the state’s economic autonomy. He warned that Kerala would face a looming financial disaster if the Center did not change course.

“The state has communicated this to the Centre several times, stating that discriminatory measures should be stopped. But the Centre has intensified its vindictive moves to make the state’s survival impossible,” he added.

Explaining the background leading to the state seeking Supreme Court intervention in settling the Centre-State financial row, the chief minister said: “Kerala is one of the states that has radically reorganised the GST department under the new GST system. This resulted in significant growth in the state’s own revenue from 2020-21 onwards.

“However, factors such as the Centre’s failure to provide GST compensation and the reduction in revenue deficit grant by the Centre have squeezed the state financially. We have tried to overcome this by increasing tax and non-tax revenue and prioritizing expenditure, but the economic impact is more than we can bear.”

Supreme Court

So, the Kerala government has approached the Supreme Court against the discriminatory measures of the Centre, which he said was pushing Kerala into dire straits by forfeiting the federal principles of the constitution.

“This legal battle is a historic one to maintain the country’s federal system,” he said.

In the petition, Kerala is seeking an order from the Supreme Court to settle the Centre-State disputes under Article 131 of the constitution.

“The Central government is playing a dangerous game by gradually eroding the constitution’s economic federalism through deliberate moves.”

At a press meet at Kottayam, he made these comments as part of the “Navakerala Sadas”, the Left Democratic Front government’s outreach programme.

He called upon the Opposition and the Kerala society to stand with the government. Vijayan also urged Governor Arif Mohammed Khan to seek an explanation from the Centre, which he alleged was trying to derail the state's development and welfare activities by encroaching on financial autonomy through cuts to borrowing limits.

Kerala’s submissions

The Kerala government has made the following demands in the petition filed in the Supreme Court:

 Prevent unconstitutional interference by the Centre in the state’s financial affairs.

 Repeal unconstitutional cuts to state borrowing limits.

 Revoke the Centre’s order which included the state’s public account liabilities in the borrowing limit.

 Repeal the order which included borrowings by state-owned enterprises in the State Borrowing Limit.

 Repeal the illegal measures restricting the borrowing of the state government by using Central agencies.

 Prohibit the Central measures that encroach upon the state’s constitutional prerogatives by the exercise of powers not contained in Articles 293(3) and 293(4) of the Constitution.

 Allow the state government to continue development and welfare activities by utilizing the statutory borrowing limit.

The chief minister said: “The Centre has no power to curtail the borrowing limit set by the state to meet the fiscal deficit, even on the recommendation of the Finance Commission. The cuts have been implemented by the Centre since 2017 by including amounts from the public account in the borrowing limit of the state.

“Later, loans taken by state-owned enterprises like KIFBI and KSSPL were also included in the borrowing limit of the state. Drastic cuts were implemented from 2022 onwards. The Central government has no constitutional power to set state borrowing limits.

Discriminatory Delhi

“Unconstitutional and illegal actions have been taken by exercising the powers which do not exist under Article 293(3) and 293(4) of the Constitution,” he said.

The Modi government did not even consider the basic principle that state-owned enterprises do not fall within the definition of the state in Article 293 of the constitution.

“It is an encroachment on the absolute powers to form and operate enterprises under government ownership,” he said.

The Centre even concealed these measures from the disclosure made in parliament. The annual budget of the state is prepared based on the total borrowing limit as per the Kerala Fiscal Responsibility Act, 2003.

“If it is not restored, there will be dire consequences. Imposed restrictions can be disastrous for the state in the long run. The consequences cannot be resolved soon,” Vijayan said.

In dealing with fiscal deficit, the Central government was using the public account uncontrollably. However, it does not even give states the freedom to do so on a reasonable basis, he said.

“Pressure measures are imposed against granting this benefit to state-owned enterprises while making sympathetic allocations from the Central budget for centrally-owned enterprises.”

Kerala’s losses

Since 2016-17, the total loss in eligible loan collection to Kerala has been Rs 1,07,513.09 crores due to loan restrictions imposed by the Centre. After 2022, the borrowings of KIFBI and KSSPL have been deducted from eligible loans to the state.

In the financial year 2020-21, the loss incurred by the state in eligible loan collection through this is Rs 9,614.30 crores. In 2021-22, it was Rs 6,281.04 crores.

The financial crisis that Kerala is facing is only due to this, but the Centre has not put in place any metrics on its financial management, Viayan explained.

All these are a direct consequence of the Central measures to undermine the economic autonomy of the state. The arrears have increased over the years after the Centre reduced the loan limit.

More than a thousand projects worth Rs 82,000 crores planned to be implemented by the state government through KIFB are in various stages. The Chief Minister said that the Central interventions will lead to the abandonment of all these development projects midway.