Supreme Court says Kerala responsible for its own financial misery, rejects state's plea to borrow more

The Supreme Court on Monday declined to provide interim relief to Kerala, stating that the state's financial difficulties were a result of its own mismanagement of funds. The court rejected Kerala's plea to borrow more money and referred the state's petition challenging the Centre's decision to restrict borrowing capacity to a Constitution bench for further examination.

Justices Surya Kant and K V Viswanathan of the bench highlighted that Kerala had not met the necessary criteria to warrant an interim injunction on the borrowing cap. The court emphasized that granting such relief could set a precedent allowing states to bypass fiscal policies despite financial mismanagement.

The apex court acknowledged that Kerala had already received substantial relief, with the Centre agreeing to release Rs 13,608 crore following the filing of the petition. Recognizing the significance of the issues at hand concerning the Federal Structure of Governance, the court directed the matter to be considered by a five-judge Constitution bench. It framed four key questions for the larger bench to address, including the aspects of fiscal decentralization in Indian federalism and the potential violation of constitutional principles by the actions of the Centre.


The Supreme Court's ruling is seen as a big setback for the Kerala government, particularly for the LDF administration. The LDF's allegations of the Centre impeding Kerala's development by denying loans and necessary funds have been countered by the court's observation of financial mismanagement within the state. The court found no evidence of irreparable harm caused by the Centre's actions, further undermining the LDF's claims.

Had the Supreme Court granted interim relief, it could have bolstered the political standing of the LDF and facilitated the clearance of pending dues and arrears owed by the state government. However, with the court's decision aligning with the Centre's position, Kerala faces continued financial constraints due to its internal financial mismanagement.

The questions raised by the Supreme Court hold significant implications for the relationship between the states and the Centre, particularly in the context of fiscal policies and federal principles. The matter will now be deliberated by a Constitution bench, emphasizing the importance of addressing these complex issues within the framework of Indian federalism.