Open to dialogue with Kerala to resolve dispute over cap on net borrowing: Centre tells SC

New Delhi, Feb 13 (PTI) With the Left Democratic Front (LDF) government in Kerala accusing the Centre of interfering in the state's finances by imposing a ceiling on net borrowing, the Centre told the Supreme Court on Tuesday it is open to discussion with the southern state to resolve the dispute.

Attorney General R Venkataramani told a bench of Justices Surya Kant and K V Viswanathan that the Union of India is agreeable to holding a meeting with Kerala on the issue.

"The suggestion falling from the court has received highest regard that it deserves. The government is open to a meeting. Let's keep it open without any conditions. There can be an open dialogue," Venkataramani said.

The top court said those governing at the Centre and in the state are seasoned administrators who can resolve the issue.

Senior advocate Kapil Sibal, appearing for Kerala, said the state government has also agreed to send a delegation to the national capital on Wednesday for talks with the Centre.

"We will fly a delegation from Kerala tomorrow morning itself and we can have a meeting tomorrow itself. Unfortunately, the budget is being presented by the (state's) finance minister so others will come," Sibal said.

The development came after the top court asked Venkataramani to seek instructions if the finance secretary of the state can meet the union finance minister and resolve the issue through negotiation.

The attorney general sought time till 2 p.m. to revert to the court on its suggestion.

"We are not asking for tinkering with fiscal policy and we know that you (Centre) cannot take decision only for one state. But we also think that you being the Union, the cordiality is one thing that will work for the country," the bench observed.

When the matter was taken up later, the top law officer told the bench that the Centre has agreed to hold talks to try and iron out the differences with the Kerala government.

The court then posted the matter for February 19 for directions.

"We'll not hear it on merits. We will fix a date on Monday," the bench said.

The Kerala government has approached the Supreme Court accusing the Centre of interfering in the exercise of its "exclusive, autonomous and plenary powers" to regulate the state's finances by imposing a ceiling on net borrowing.

In an original suit filed under Article 131, the Kerala government has said the Constitution bestows fiscal autonomy upon states to regulate their finances under various articles, and the borrowing limits are regulated by a state legislation.

Under Article 131, the Supreme Court has the right to settle disputes between the Centre and states or between states.

In a note submitted before the top court, the Centre had said uncontrolled borrowing by states would affect the credit rating of the whole country, and that the fiscal edifice of Kerala has been diagnosed with "several cracks".

Attorney General R Venkataramani had, while asserting that public finance management is a national issue, said if the state indulges in reckless borrowing to finance unproductive expenditure or poorly targeted subsidies, it will crowd out private borrowing from the market.

The AG had said uncontrolled borrowing will lead to increase in the borrowing costs of private industries and adversely impact the production and supply of goods and services in the market.

Venkataramani also asserted that states require permission of the Union government to borrow from any source, and added their borrowing limits are fixed in a non-discriminatory and transparent manner guided by the recommendations of the Finance Commission.

The Kerala government's suit referred to the letters dated March 27, 2023 and August 11, 2023 issued by the Centre, through the Ministry of Finance (Public Finance-State Division), Department of Expenditure, and the amendments made to section 4 of the Fiscal Responsibility and Budget Management Act, 2003.

It alleged that the Centre "seeks to interfere with the finances of the state by (i) imposing a net borrowing ceiling on the plaintiff state in the manner deemed fit by the defendant Union, which limits borrowings from all sources including open market borrowings..." It also gave the figure of dues as on October 31, 2023 which had accumulated over the years because of the financial constraints stemming from the ceiling imposed by the Centre on borrowing.

Kerala said the suit "squarely raises a dispute as to the right, power and authority of the defendant Union (of India) to interfere with the exclusive, autonomous and plenary powers of the plaintiff state to regulate its own finances under several provisions of the Constitution". It said the borrowing limits are regulated by the Kerala Fiscal Responsibility Act, 2003 as amended from time to time.

The suit claimed the Centre's actions "fall foul of, and violate the federal structure of the Constitution". PTI