The Aryavarth Express
Agency (THIRUVANANTHAPURAM): : A protracted legal battle is in the offing between the Kerala Government and the Centre with Kerala’s talks with talks over the issues of fiscal federalism having failed to achieve a breakthrough.
A four-member Kerala delegation led by State finance minister K N Balagopal held a meeting with the Union Government officials including the Union Finance Secretary. Besides Balagopal, other members of the team were Chief Principal Secretary to the Chief Minister K M Abraham, Finance Principal Secretary Rabindra Kumar Aggarwal and Advocate General K. Gopalakrishna Kurup.
The meeting followed the Supreme Court’s directive that the State hold talks with the Union Government officials to resolve the deadlock over the Centre’s decision to impose a ceiling on Kerala’s net borrowing. It may be mentioned that Kerala had moved the apex court accusing the Union Government of interfering in the exercise of its “exclusive, autonomous and plenary powers” to regulate the State’s finances by imposing a ceiling on net borrowing.
Balagopal admitted that there was no breakthrough in the meeting. The state submitted the most feasible options to the Union Government, Balagopal said in New Delhi, adding that the case about fiscal federalism and the main issues were not resolved at the meeting.
The Kerala Government had said, in its original suit filed under Article 131, that the Constitution bestowed fiscal autonomy on States to regulate their finances under various articles, and the borrowing limits are regulated by State legislation. Article 131 empowers the Supreme Court to settle the disputes between the Centre and the States or between States.
Kerala has been taking strong objection to the Union Government’s discrimination against and hostile attitude to the State. February 8 saw a massive protest at Jantar Mantar in the national capital by leaders and lawmakers from the Left Democratic Front (LDF) Government led by Chief Minister Pinarayi Vijayan. The Chief Minister has accused the Union Government of not giving the States their due share of taxes, and using the Governors to disrupt the functioning of the governments.
Kerala’s case, filed in the apex court, underlines that the limits imposed by the Union Government on the State’s borrowing powers have pushed the State into a serious crisis, caused by the withholding of resources amounting to Rs 1.07 lakh crore since 2017. The State’s suit argues that it has exclusive authority to regulate the finances by preparing and managing its budget and borrowings. The Union Government, Kerala contended, does not have any constitutional right or authority to issue directives to the State Government under Article 293 of the Constitution which could undermine the federal structure by encroaching upon the State’s exclusive financial domain.
Kerala contended that it has suffered a loss of Rs 91,617.59 crore from financial year 2017 onwards because of a new order implemented by the Union Government in 2017, as outlined in the Finance Commission’s report. The order introduced the practice of deducting the balances in the public account of Kerala and other States from their net borrowing ceiling (NBC). Another order, implemented in 2022 saw the State incurring a loss of Rs 15, 895.50 crore. The second order relates to deducting the borrowings of State-owned enterprises on the ground that they utilize budgetary support of the State for repaying its liabilities. As of now, Kerala has suffered a cumulative expenditure loss of Rs 1,07,513.09 crore over fiscal years 2016-23, as filed in the affidavit.
As a result of the actions of the Union Government, the state finds itself in significant arrears it owes in terms of welfare schemes to the people, especially the poor and vulnerable, various beneficiary groups, state government employees, pensioners, and dues to its state-owned enterprises. If the dangerous situation is not averted, the State fears that its treasury operations will be halted or badly curtailed. Hence its suit seeking urgent intervention by the Supreme Court.
Meanwhile, a new report by India Ratings and Research (Ind-Ra) says that the reduced divisible tax pool and low tax devolution disregarding the recommendations of the Finance Commission (FC) is a matter of grave concern. According to the study conducted by the Fitch Group company, an analysis of the Union budgets over the years shows a consistent underperformance in tax devolution provided to the States compared to the levels recommended by the FC. The study has it that in financial year 25, the Union Government has budgeted to share 35 per cent of the divisible tax pool with States. This is lower than the 15th FC’s recommendation of 41 per cent.
Unless wiser counsels prevail, Kerala is set to engage in a long and protracted legal battle to secure its legitimate rights envisioned in the Constitution. The protest at Jantar Mantar is only the first step in this direction. It is an encouraging sign that the protest saw other non-BJP states like Delhi and Punjab ruled by the Aam Aadmi Party (AAP) and the DMK Government in Tamil Nadu extending their support and solidarity with Kerala. Also joining the protest was former Jammu Kashmir chief minister Farooq Abdullah. The days ahead could witness an intensification of the agitation by the non-BJP states to regain fiscal autonomy enshrined in the Constitution. (IPA Service)
By P. Sreekumaran