Source: Supreme Court

Why in News?

The legal dispute between the State of Kerala and the Union of India revolves around constitutional provisions governing state borrowing, with significant implications for fiscal federalism and economic governance. At the heart of the matter lies the interpretation of Article 293 and its intersection with the Union's authority to regulate state finances.

• The Supreme Court heard this in the case State of Kerala v. Union of India.

What is the Background of State of Kerala v. Union of India Case?

• The State of Kerala initiated an Original Suit under Article 131 of the Indian Constitution against the Union of India, contesting several actions.
• These included Amendment Act No. 13 of 2018, a letter imposing a ‘Net Borrowing Ceiling’, and another letter granting consent for open market borrowing.
• The suit contended that these actions exceeded the Union's power under Article 293 of the Constitution, which regulates State borrowing.

What were the Court’s Observations?

• Ultimately, the Court noted substantial questions regarding constitutional interpretation, particularly regarding Article 293's scope and the principles of federalism.
• As these questions were significant and lacked precedent, the Court decided to refer them to a larger bench for consideration.

What is Article 293 of the Constitution?

• Borrowing by States:
  • Subject to the provisions of this article, the executive power of a State extends to borrowing within the territory of India upon the security of the Consolidated Fund of the State within such limits, if any, as may from time to time be fixed by the Legislature of such State by law and to the giving of guarantees within such limits, if any, as may be so fixed.
  • The Government of India may, subject to such conditions as may be laid down by or under any law made by Parliament, make loans to any State or, so long as any limits fixed under Article 292 are not exceeded, give guarantees in respect of loans raised by any State, and any sums required for the purpose of making such loans shall be charged on the Consolidated Fund of India.
  • A State may not without the consent of the Government of India raise any loan if there is still outstanding any part of a loan which has been made to the State by the Government of India or by its predecessor Government, or in respect of which a guarantee has been given by the Government of India or by its predecessor Government.
  • A consent under clause (3) may be granted subject to such conditions, if any, as the Government of India may think fit to impose.