Centre Offers Rs 5,000 Crore After Supreme Court's 'One-Time Package' Request, Kerala Says Not Sufficient

A legal battle between the Centre and Kerala has begun in the Supreme Court after the Union government offered only Rs 5,000 crore as a one-time measure to help the state avoid an immediate financial crisis.

Senior advocates Kapil Sibal and CK Sasi, representing Kerala, informed the bench of Justices Surya Kant and KV Viswanathan that this amount would not be sufficient to meet the state's basic financial commitments, such as pensions and salaries as per a report by The Hindu.

The Union government also proposed to deduct Rs 5,000 crore from Kerala's net borrowing ceiling in the first nine months of the financial year 2024-2025, and stated that the state would not be allowed any "ad-hoc" borrowing in that period if it accepts the Rs 5,000 crore offer.

Kerala's rejection of the Centre's Rs 5,000 crore offer was described as treachery by Union Minister V Muraleedharan. Sibal argued that the Union government's aim was to "strap the State down and control its finances," and insisted that Kerala needed at least Rs 10,000 crore.

The Supreme Court was hearing an original suit filed by Kerala accusing the Union government of interfering with its borrowing limits and financial affairs in violation of federalism.

Justice Kant noted that this suit was likely the first of its kind in the Supreme Court and scheduled arguments for interim relief for 21 March.

However, during the hearing, Additional Solicitor General N. Venkataraman, representing the Union government, presented a note detailing statistical projections and reasons for limiting financial assistance to Kerala, indicating that negotiations had ended.

The note explained that Kerala's projected Gross State Domestic Product (GSDP) for 2024-2025 is estimated at Rs 11,19,906 crore. The net borrowing ceiling for Kerala is three per cent of its GSDP, which would amount to Rs 33,597 crore.

After deducting off-budget borrowing done by Kerala in 2021-2022, the total borrowing limit is Rs 28,886 crore. Out of this, 75 per cent (Rs 21,664 crore) can be borrowed in the first nine months of 2024-2025.

If Kerala were to receive an advance of Rs 15,000 crore before the end of March 2024, its borrowing space for the next financial year would be reduced to Rs 6,664 crore.

Venkataraman argued that this amount would not be sufficient for the state to manage its finances adequately, given its expenditure trend.