Supreme Court Suggests One-Time Package for Kerala Crisis

New Delhi: The Supreme Court on Tuesday asked the Centre to consider providing a one-time package to the Kerala government by March 31 to help the state stave off the financial crisis.

Senior Advocate Kapil Sibal, representing the Kerala government, mentioned the state’s pending petition against the Centre for urgent hearing before a bench comprising Justices Surya Kant and K.V. Viswanathan, alleging that the Union was not releasing necessary funds.

The bench agreed to list the plea of the Kerala government for hearing on Wednesday and said the Centre can be “slightly liberal and give a one-time package as a special case” to the state.

The bench said more rigid conditions may be put in future budgets and, in the meantime, a special package be given to the state before March 31.

Additional Solicitor General N. Venkataraman, appearing for the Centre, said the offsetting balance is having a cumulative effect on Kerala’s finances and the state deferred fiscal consolidation twice. An offsetting balance is a minimum credit balance that a bank may require a borrower to keep in deposit as a condition for granting a loan.

“We are really constrained and our hands are tied,” the ASG said. To this, the bench said, “We are not experts, and cannot tell you the way out.”

On March 6, the bench said that fiscal mismanagement by states is an issue the Union government has to be concerned about as it impacts the nation’s economy.

It had advised the Centre and the Kerala government to iron out their differences on a cap on net borrowing by the state. The apex court had made the observation while it was hearing a suit filed by the Kerala government accusing the Union of India of interfering in the exercise of its “exclusive, autonomous and plenary powers” to regulate the state’s finances by imposing a ceiling on borrowing.

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

The Centre has submitted that 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.”