WHY A STATE IS SUING THE UNION

There is constitutionally guaranteed financial autonomy for states. But by a 2018 amendment to the law on fiscal responsibility, the Centre tried to step into the states’ terrain

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RECENTLY, a two-judge bench of the Supreme Court consisting of Justices Surya Kant and K V Viswanathan referred a suit filed by the state of Kerala against the Union of India to a Constitution bench for an authoritative pronouncement on the issue. It is an unprecedented litigation of great legal and constitutional importance.

The genesis of the case is also curious. The suit challenges an amendment made to the Fiscal Responsibility and Budget Management (FRBM) Act, 2003. This is a parliamentary legislation. The amendment was made in 2018. As per the amendment, the Union of India gets the power to ensure the aggregate debt of the Union and state governments does not exceed 60 percent of the gross domestic product.

That is to say, the Union government must fix the borrowing limit of the states as well, invoking the parliamentary enactment. The government at the Centre also issued letters to Kerala imposing a 'net borrowing ceiling' on the state.

Separation of powers is not merely a political or administrative concept. It is also an economic idea, as designed by the Constitution. Fiscal federalism is a facet of India's democracy. Article 292 of the Constitution talks of borrowing by the Government of India (Gol) while Article 293 talks of borrowing by the states. In Article 293, there is a provision for making loans to any state by the Centre. It bars the state from raising a loan without the consent of the GoI, if any amount of loan the Centre gave the state is still outstanding.