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Kottayam, Dec 14 – Kerala Chief Minister Pinarayi Vijayan on Thursday urged the Centre to refrain from encroaching on the State’s economic autonomy.

Addressing a press conference here as part of ‘Navakerala Nadas’, the LDF Government’s outreach programme, he cautioned that if the Centre does not halt its encroachment on the state’s economic autonomy, the State is heading towards a looming financial disaster.

The Central government is playing a dangerous game by gradually eroding the Constitution’s economic federalism through deliberate moves.

Calling upon the opposition and Kerala society to stand with the government, Vijayan said the State government embarks on a decisive legal and historic battle to preserve Indian federalism.

He also urged the Governor to seek an explanation from the Centre, which is consistently trying to derail development and welfare activities in the State by encroaching on financial autonomy through cuts to borrowing limits.

Explaining the background leading to the State seeking Supreme Court intervention in settling the Centre-State financial dispute, the Chief Minister said, “Kerala is one of the States that has radically reorganized the GST department under the new GST system.”

“This resulted in significant growth in the State’s own revenue from the financial year 2020-21 onwards. However, factors such as the Centre’s failure to provide GST compensation and the reduction in revenue deficit grant by the Centre have squeezed the State financially.”

“We have tried to overcome this by increasing tax and non-tax revenue and prioritizing expenditure, but the economic impact is more than we can bear.”

“The unconstitutional and illegal measures taken by the Centre, in the guise of controlling loans for development and welfare activities, have put the State in serious trouble.”

“It is a dangerous trend. The State has communicated this to the central government several times, stating that discriminatory measures should be stopped, but the Centre has intensified its vindictive moves to make the state’s survival impossible,” he added.

In this context, the State Government has approached the Supreme Court against the discriminatory measures of the Centre, which is pushing Kerala into dire straits by forfeiting the federal principles of the Constitution of India.

This legal battle is a historic one to maintain the country’s federal system. In the petition, Kerala is seeking an order using the powers of the Supreme Court to settle Centre-State disputes under Article 131 of the Constitution.

This petition is to restore state governments’ constitutional rights, and Kerala Government’s demands are Prevent unconstitutional interference by the Centre in the State’s financial affairs, Repeal unconstitutional cuts to state borrowing limits, Revoke the Centre’s order, which included the state’s public account liabilities in the borrowing limit, Repeal the order, which included borrowings by State-Owned Enterprises in the State Borrowing Limit, Repeal the illegal measures restricting the borrowing of the State Government by using Central agencies, Prohibit the Central measures that encroach upon the State’s constitutional prerogatives by the exercise of powers not contained in Articles 293(3) and 293(4) of the Constitution and allow the state government to continue development and welfare activities by utilizing the statutory borrowing limit.

Vijayan The constitution gives the States financial autonomy. This is clear from Articles 162, 199, 202, 204, 266, 298, and Entry 43 of the State List in the 7th Schedule.

Article 293(1), read with these articles, clarifies that states have unique powers to fix borrowing limits. The Kerala Fiscal Responsibility Act, 2003, is an Act passed by the Kerala Legislative Assembly to set a ceiling on state borrowing.

It also takes steps to ensure fiscal discipline at all levels. Under this Act, the borrowing limit for the state is 3.5 per cent of Gross State Domestic Product (GSDP).

The state allocates funds for plan and non-plan development and welfare activities against this borrowing limit.

“The Centre has no power to curtail the borrowing limit set by the State to meet the fiscal deficit, even on the recommendation of the Finance Commission. The cuts have been implemented by the Centre since 2017 by including amounts from the public account in the borrowing limit of the state. Later, loans taken by state-owned enterprises like KIFBI and KSSPL were also included in the borrowing limit of the state.”

“Drastic cuts were implemented from 2022 onwards. The central government has no constitutional power to set state borrowing limits. Unconstitutional and illegal actions have been taken by exercising the powers which do not exist under Article 293(3) and 293(4) of the Constitution,” he asserted.

It did not even consider the basic principle that State-owned enterprises do not fall within the definition of ‘State’ in Article 293 of the Constitution.

It is an encroachment on the absolute powers to form and operate enterprises under government ownership.

The Centre even concealed these measures from the disclosure to be made in the Parliament under Article 281 of the Constitution, he alleged.

The annual budget of the state is prepared based on the total borrowing limit as per the Kerala Fiscal Responsibility Act, 2003. If it is not restored, there will be dire consequences.

Imposed restrictions can be disastrous for the state in the long run. The consequences cannot be resolved soon.

In dealing with the fiscal deficit, the Central government is using the public account uncontrollably to deal with the fiscal deficit. However, it does not even give states the freedom to do so on a reasonable basis.

Pressure measures are imposed against granting this benefit to state-owned enterprises while making sympathetic allocations from the central budget for centrally-owned enterprises.

Since 2016-17, the total loss in eligible loan collection to the state has been Rs 1,07,513.09 crores due to loan restrictions imposed by the Centre.

After 2022, the borrowings of KIFBI and KSSPL have been deducted from eligible loans to the state. In the financial year 2020-21, the loss incurred by the state in eligible loan collection through this is Rs 9,614.30 crores.

In 2021-22, it was Rs 6,281.04 crores. The financial crisis that the state is currently facing is only due to this, but the Centre has not put in place any metrics on its financial management.

All these are a direct consequence of central measures to undermine the economic autonomy of the state. The arrears have increased over the years after the Centre reduced the loan limit.

More than a thousand projects worth Rs 82,000 crores planned to be implemented by the state government through KIFB are in various stages.

Central interventions will lead to the abandonment of all these development projects midway, the CM said.

He also emphasized that the state urgently needs Rs 26,226 crores to ease this critical crisis caused by central measures. “It will not be enough to overcome the crisis. It is estimated that the loss due to central measures will be between 2 and 3 lakh crore rupees in the next five years,” Vijayan added.