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Kerala’s lawsuit against the Center seeks relief from debt restrictions

Challenging the Centre’s recent measures restricting the borrowing capacity of states, the state of Kerala filed a suit in the Supreme Court under Article 131 of the Constitution of India. Kerala has sought an injunction to prevent reduction in borrowing capacity of over ₹26,000 crore to clear financial obligations. It alleged that these measures would violate the federal policy and seriously damage the state’s economy.

Urgency Downplayed

The Center contended that there was no need for the court to hear Kerala’s interim application before the entire case. The Attorney General said that Kerala was hiding its own financial irregularities and the case should not be dealt with in half through interim orders. Kerala cited looming budget deadlines due to debt restrictions.

Federalism, Fiscal Powers Targeted

The Kerala litigation argued that the Centre’s orders undermined federalism by crippling states’ exclusive powers over economic policymaking and budget management. It argued that these measures would hamper the state’s ability to manage public sector enterprises, allocate expenditures and borrow against the budget to raise funds.

Arbitrary Borrowing Limits

In particular, Kerala challenged the Net Borrowing Ceiling (NBC) imposed unilaterally by the Center to limit total borrowing by states. It held that the amendments to the Fiscal Responsibility Acts usurped the states’ constitutional authority over public debt and borrowing. Kerala alleged that this was illegal economic overreach in violation of the principles of federal cooperation.

Solvency Fears

Kerala argued that NBC would threaten its solvency and default on obligations. The Center stressed the need for fiscal discipline due to Kerala’s poor track record of fiscal management compared to other states despite debt constraints. The court has yet to decide on the immediate relief.


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