Kerala Govt counters Union Government's claim, says Centre accounts approximately 60 per cent of total debt

New Delhi [India], Feburary 9 : Countering the submission made by the Union Government in its affidavit, the Kerala Government said that Central Government accounts for approximately 60 per cent of the total debt or outstanding liabilities of India.
In an affidavit, Kerala Government said that Centre can't control over the debt of state and the justification put forth by the Union Government to control the borrowings of the Kerala State are fallacious, exaggerated and plainly unjustified.
Responding to the notes filed by the Attorney General, Kerala Govt made submission and said, "The Central Government accounts for approximately 60 per cent of the total debt or outstanding liabilities of India. ALL the States put together account for the rest (approximately) 40% of the total debt of the Country. In fact, the Plaintiff State accounts for a miniscule 1.70-1.75 percent of the total debt of the Centre and the States put together for the period 2019-2023."
"Therefore, the premise that borrowings of the Plaintiff State can destabilise the economy is clearly exaggerated. Even a premise that all States would indulge in financial profligacy, which would have an impact on the national economy is highly hypothetical and simplistically conflated, as: (i) it presumes that State Governments would necessarily borrow imprudently unless the Central Government monitors them; and (ii) it ignores the fact that borrowings by States are governed by market forces, which sufficiently regulate and deter any such propensity to be reckless and profligate and (iii) that all States can only borrow under the Limits set by the State Legislatures under their respective Fiscal Responsibility Legislations," Kerala Government said.
"The Defendant Union, while adverting to the inter-dependence of the finances of the Union and the States, has conveniently ignored the fact that, in fact, fiscal management and discipline of the Defendant Union plays an exponentially larger role and has a more far-reaching impact, not only on the economy, but also on the availability of finance for the States." Kerala said in the affidavit.
In fact, the credit-rating of the States and their SoEs, specially at the global level are adversely impacted by the rating of the Union itself, the state government said.
The Kerala Government further added that when the Kerala Infrastructure Investment Board (KIIFB) raised funds through External Commercial Borrowings, the rating that was given to it was with reference to the poor credit-rating that the Union has in the global market.
"The Note deliberately overlooks the fact that the Union has a dismal record of reining in its own debt. The Note fails to address the key issue raised in this Suit, that under the pretext of public finance management, the Union Government cannot assume a role or seek to exercise powers that are extra-constitutional, and/or violate provisions of the Constitution. The note seems to be intended to obfuscate facts and misdirect the discourse, without addressing the pith and substance of the issues raised in the plaint," state government said.
Kerala's financial health and debt situation have attracted adverse observations from successive Finance Commissions (12th, 14th and 15th) as well as the CAG and it is one of the most financially unhealthy states as its fiscal edifice has been diagnosed with several cracks, Attorney General R Venkataramani said in a note submitted before the Supreme Court.
Responding to Kerala's government suit, the Centre in its affidavit, apprised the Supreme Court that Kerala has been one of the most financially unhealthy states, and its fiscal edifice of Kerala has been diagnosed with several cracks.
The Attorney General for India has filed a written note in the suit filed by Kerala Government where he said that 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 domino effect endangering the financial stability of the whole of India," he said.
The note has cited 12th Finance Commission, CAG and RBI report to show the condition of the Kerala state.
The note was filed on the response to the Kerala Government petition against Centre's alleged interference in states' finances and said that due to such interference the state is not able to fulfil the commitments in its annual budgets.
In a Suit filed by Kerala government, it stated that state govt deals with the executive power conferred on the Plaintiff State under Article 293 of the Constitution of India to borrow on the security or guarantee of the Consolidated Fund of the State in alignment with the fiscal autonomy of the Plaintiff State as guaranteed and enshrined in the Constitution.
Kerala Govt, through its petition, said Centre through the Ministry of Finance (Public Finance-State Division), Department of Expenditure letters dated March 2023 & August 2023 and by amendments made to Section 4 of the Fiscal Responsibility and
Budget Management Act, of 2003 sought to interfere with the finances of the state by imposing a net borrowing ceiling on the State.
The Kerala government said that such interference with the finances of the state was caused by 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.