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Kerala bankrupt: Supreme Court blames Kerala for its financial woes, rejects demand for additional borrowing. Details

Justices Surya Kant and K V Viswanathan emphasised that Kerala failed to meet the necessary criteria for an interim injunction on the borrowing cap. They highlighted that granting such relief might establish a precedent enabling states to circumvent fiscal policies despite financial mismanagement.

On Monday, the Supreme Court rejected Kerala’s request for immediate relief, attributing the state’s financial woes to its mishandling of funds. Kerala’s plea for increased borrowing was turned down, and the court referred the state’s challenge against the Centre’s borrowing restrictions to a Constitution bench for further scrutiny.

Justices Surya Kant and K V Viswanathan emphasised that Kerala failed to meet the necessary criteria for an interim injunction on the borrowing cap. They highlighted that granting such relief might establish a precedent enabling states to circumvent fiscal policies despite financial mismanagement.

Acknowledging that Kerala had already received significant relief with the Centre releasing Rs 13,608 crore after the petition, the court directed a five-judge Constitution bench to examine the matter. It posed four key questions for the larger bench to address, including issues of fiscal decentralization in Indian federalism and potential violations of constitutional principles by the Centre’s actions.

The Supreme Court’s decision is a setback for the Kerala government, particularly the LDF administration. The court’s observation of financial mismanagement within the state countered LDF’s claims of the Centre obstructing Kerala’s development by denying loans and necessary funds. The court found no evidence of irreparable harm caused by the Centre’s actions, further weakening the LDF’s arguments.

Had the Supreme Court granted interim relief, it could have boosted the LDF’s political position and facilitated the clearance of pending dues and arrears owed by the state government. However, the court’s alignment with the Centre’s stance means Kerala will continue to face financial constraints due to its internal financial mismanagement.

The Supreme Court’s questions have significant implications for the state’s relationship with the Centre, especially concerning fiscal policies and federal principles. The issue will now be deliberated by a Constitution bench, highlighting the importance of addressing these intricate matters within the Indian federalism framework.

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