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Economy
Mahesh

04/04/24 12:30 PM IST

The Kerala-Centre dispute over States’ borrowing powers

In News
  • The Supreme Court recently declined any interim relief to Kerala in its suit seeking that the Union government relax its borrowing restrictions to enable the State to borrow additional funds during the current fiscal year.
Net borrowing ceiling
  • The NBC imposes a limitation on borrowings of a State from all sources including open market borrowings.
  • The Union government decided to deduct liabilities arising from the public account of the States to arrive at such a cap.
  • Additionally, borrowings by State-owned enterprises, where the principal and/or interest are serviced out of the Budget or through assignment of taxes, cess or any other State revenue, are also deducted from the NBC.
  • The NBC for States is fixed at 3% of the Gross State Domestic Product (GSDP) or ₹8,59,988 crore in absolute terms for the Financial Year (FY) 2023-24 as recommended by the 15th Finance Commission.
Fiscal autonomy under the Constitution
  • Article 293 of the Constitution permits States to borrow only from within the territory of India on a guarantee from the consolidated fund of the State and within such limits as outlined by the legislatures of each State.
  • The subject “Public Debt of the State” finds mention in Entry 43 of the State List of the Constitution and thus the Parliament cannot legislate or administer upon such matters.
  • If a State wishes to borrow from the Centre, then such a transaction will be regulated by the FRBM Act, 2023.
  • Pertinently, under Article 293(3), the State has to obtain the consent of the Centre to raise “any loan,” if “any part of the previous loan” extended by the Centre is outstanding.
  • The NBC has been imposed by invoking the powers of the Centre under this provision.
  • It has also been argued on behalf of the Kerala government that the scope of Article 293(3) and (4) is limited to the “States” as defined under Article 1(1) of the Constitution and cannot be extended to include the debt of government agencies, including companies and statutory bodies.
Source- The Hindu

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