’Kerala one of the most financially unhealthy states’, Centre tells Supreme Court

mangaloretoday.com

New Delhi, Feb 07, 2024: The central government has informed the Supreme Court that Kerala is one of the most financially unhealthy states in the country. This comes amid an ongoing tussle between the two sides over the release of funds for Kerala. The Centre also claimed that the state’s financial stress is due to its mismanagement.

In his note submitted before the top court, Attorney General R Venkataramani, representing the Centre, said that Kerala’s public finance management is a national issue.

"Kerala’s financial stress is due to its mismanagement. Kerala has been categorised by the Reserve Bank of India as among the five highly-stressed states requiring urgent corrective measures," he said.

"Along with Punjab and West Bengal, Kerala is the state with the worst fiscal management in the country. The expenditure of the Kerala government is increasing considerably. Between 2018-19, the expenditure of the state was pegged at 78 per cent of its revenue income. The fiscal deficit increased from 2.4 per cent in 2017–18 to 3.1 per cent in 2021–2022," the Attorney General added.

Opposing the Pinarayi Vijayan-led Kerala government’s demand for more funds from the Centre, Venkataramani said the "state is utilising the borrowed funds to pay for ongoing expenses, such as paying salaries and pensions, rather than investing them in profitable ventures".

Blaming the state for affecting the overall rating of the country, he said, "Debt of states affects the credit rating of the country. Moreover, default by any state in debt servicing would create reputational issues and will have a domino effect endangering the financial stability of the whole of India.

"If the state indulges in reckless borrowing to finance unproductive expenditure or poorly targeted subsidies, it will crowd out private borrowing from the market. This will lead to an increase in the borrowing costs of private industries and adversely impact the production and supply of goods and services in the market.

"Increases in the state’s debt servicing liabilities as a consequence of higher borrowing by it will reduce the availability of funds for development, leading to impoverishment of people and loss of state income, and hence also loss of national income."

The Attorney General’s note went on to say that states "require permission of the Centre to borrow from any source".

"While giving this permission, the Centre keeps in mind the overall objectives of macroeconomic stability of the country as a whole and fixes a borrowing limit for the State seeking its permission, under Article 293(4)."

It further added that the borrowing limits of states are fixed in a non-discriminatory and transparent manner guided by the recommendations of the Finance Commission.

The Attorney General’s response came on an application filed for interim relief by the Kerala government in a pending petition against the Centre’s alleged interference in the state’s finances.

It said that due to such interference, the state is not able to fulfill the commitments in its annual budgets.

In a suit filed by the Kerala government, it claimed the Centre lowered the borrowing limit of the state, which can potentially lead to a grave financial crisis.

The suit has challenged two letters issued by the Union Finance Ministry and amendments made to the Fiscal Responsibility and Budget Management Act.

It noted that an amount of some Rs 26,000 crore is imminently and urgently required.

On Friday, Kerala’s ruling Left Democratic Front (LDF) is slated to hold a protest at Delhi’s Jantar Mantar against the Centre’s "withholding" of funds for the state.

In December 2023, the Kerala government approached the Supreme Court against the Centre’s borrowing limits, saying that the latter was taking away the state’s rights.

Courtesy: India Today