Open to holding meeting with Kerala govt & discuss financial issues: Centre to SC

The bench will assemble on Monday afternoon to be apprised of the outcome of the meeting.

The central government informed the Supreme Court on Tuesday that it will hold a meeting with the Kerala government on the latter’s demand for an immediate disbursal of over ₹26,000 crore.

The Court was hearing an application moved in the suit by the Kerala government claiming it had no money to clear outstanding arrears of salaries, pension, provident fund for state employees and for other beneficiaries in the state under various welfare schemes of the government,

A bench headed by justice Surya Kant said, “These are issues which can be sorted out by negotiation,” as it took up the matter early in the day and asked Attorney General R Venkataramani to take instructions whether the Centre will be open for resolving the issue through dialogue and inform the Court by 2pm.

In the post-lunch session, Venkataramani told the bench, “The suggestion from this court has been given the highest regard and the government is open for a meeting. There could be an open dialogue and whatever is the outcome, we can inform the Court.”

The bench, also comprising justice KV Viswanathan said, “The way the Centre has responded is very positive. This itself is cooperative federalism. We will keep this matter for directions on Monday.”

The state was represented by senior advocate Kapil Sibal and advocate general K Gopalakrishna Kurup who pointed out urgency in this case and said that the state finance secretary is willing to fly down and have a meeting on Wednesday itself.

“We want to enable both sides time as they will have their own reasons. Instead of telling us your urgency, you must convince them. Whether it is Centre or state, they are seasoned administrators. We are confident they will be able to handle the issue,” the bench remarked, while posting the matter for February 19.

Sibal even requested for the hearing to be advanced to Friday, but the bench was uncertain whether a solution could be arrived by then.

The suit filed by the Pinarayi Vijayan-led government challenged two letters issued by the Union finance ministry (Public Finance-State Division) on March 27 and August 11 last year and amendments made to Section 4 of the Fiscal Responsibility and Budget Management Act, 2003 in March 2018 for “imposing a net borrowing ceiling (NBC) on the state by limiting borrowings from all sources, including open market borrowings. It further reduced the NBC by including some aspects under “borrowing” which are not contemplated under the Constitutional scheme.

Both the Centre and state government have filed their responses in the matter with the former claiming that the financial edifice of the state has several cracks.

In response, the Kerala government stated that the Union government has a dismal record in reigning its debt.

While the hearing on the suit will require elaborate hearing, the state moved an application in the suit requiring funds worth ₹26,226 crore towards settling outstanding dues of pension, dearness allowance and payouts under the state-run welfare schemes.

Sibal said, “If this fund is not received, there will be issues in releasing provident fund, pensions and (Parliamentary) elections will soon come.”

He welcomed the Court’s suggestion to have a dialogue and said the state finance secretary will meet Union finance minister Nirmala Sitharaman by evening.

Earlier in the day, Venkataramani opposed the application claiming that it could raise “wide economic issues” having repercussions on the Centre-state relations across the country.

“In a matter of policy, lines have to be drawn, it raises a macroeconomic issue,” the top law officer said.

Sibal said that despite getting these funds, the state will still be in deficit.

“Don’t say it is a policy issue and it will disturb the economy. The Finance Commission has said, our debts are within limits”, he said.

Additional solicitor general N Venkataraman also appearing for Centre said that the March 2023 order was issued after carrying out a detailed exercise.

He said, “The order under challenge has a long data how it was introduced. It is not the government which took the call. The decision was taken by two constitutional bodies – the comptroller and auditor general (CAG) and the Finance Commission.”

Responding to these arguments in the morning, the bench observed, “We are not asking you to tinker with fiscal policy. We know decisions cannot be taken for just one state. But we think that being the Union government, cordiality can be one thing that works for the country.”

Before asking the Centre to take instructions, the Court said that the suggestion for talks should not be an “empty formality” but should carry probability of a headway.

The bench will assemble on Monday afternoon to be apprised of the outcome of the meeting.

The details of when and where the meeting is to be held were left to be worked out between the respective governments.

The state had submitted a response to the Court on February 9 where it gave a point-by-point rebuttal to a note of January 25 submitted by the Attorney General.

The state said that the Centre has deprived Kerala of resources to the tune of ₹1.07 lakh crore during the period 2017-2024 due to the curbs imposed by Centre.

It said, “The plaintiff state believes, that is part of a misguided and unfair political strategy that the defendant Union is adopting, just on the eve of the elections to the Parliament, to force the plaintiff state to a financial crisis and a treasury breakdown.”

The note by the AG had said, “Kerala has been one of the most financially unhealthy states and its fiscal edifice has been diagnosed with several cracks.”

Giving statistics to illustrate its point, the AG said that the revenue deficit in Kerala as percentage of gross state domestic product (GSDP) was 3.17% for 2021-22, higher than the all-states average of 0.46%.

During the same period, the fiscal deficit rate for Kerala was 4.94% compared to an all-states average of 2.80%. It even commented adversely on the dismal rate of capital expenditure, being an indicator of overall growth.

In response, the state presented reports by international monetary organisations and said, “The note (by AG) seems to present the debt of the states as the greatest vulnerability for ‘sound public financial management’ diverting attention from the fact that the Union has grossly underperformed in its management of public finances – even in comparison to several emerging countries… Consequently, it has to be inferred that the Union poses a much greater serious threat to macroeconomic stability of the country than all the states of India put together.”

The suit filed by Kerala raised a fundamental issue of fiscal federalism and said, “…the orders and amendment create unconstitutional limits and impediments on the state to borrow and regulate its own finances, therefore violating the provisions and principles of fiscal federalism under the Constitution.”

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