Is it okay for the Union government to impose limits on how much a State government can borrow? Or does a state government have an “enforceable right” to decide its own borrowing limits? This question, raised by the Kerala government, has been referred to a Constitution Bench by the Supreme Court.

The key constitutional question that the Supreme Court wants a five-judge bench to decide is: whether ‘fiscal decentralistion’ is an integral aspect of Indian federalism, and if so, are Central regulations fixing borrowing limits on States a violation of the principle of federalism.

In its suit filed before the Supreme Court, Kerala has accused the Union government of imposing arbitrary borrowing limits, due to which the Kerala government is on the verge of bankruptcy – unable to pay salaries, pensions and fulfil its various financial commitments.

Have the Centre’s restrictions resulted in an unfair and/or differential treatment to Kerala? Aren’t the Centre’s restrictions in conflict with the RBI’s designated role as the nation’s “public debt manager”?

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