Supreme Court reserves order on Kerala's borrowing limit challenge

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₹19,351 crore. While the Centre initially agreed to allow an additional borrowing of ₹13,608 crores, it insisted that Kerala withdraw the legal suit. However, the court intervened, stating that the Centre cannot impose conditions on Kerala to withdraw the lawsuit.

Subsequently, Kerala rejected the Centre's offer of ₹5,000 crore as a one-time measure, citing various conditions. Instead, the state demanded a minimum of ₹10,000 crore as a one-time measure, arguing that the proposed amount was insufficient to meet essential obligations such as public fund disbursements, pensions, and pay revisions. Senior advocate Kapil Sibal representing Kerala argued that the Centre's restrictions constituted executive overreach, emphasizing Kerala's constitutional authority to determine its budget and borrowing needs.

Sibal highlighted the significant reduction in Kerala's borrowing from the Union government post-liberalization and objected to the Union's interference in the state's financial affairs. In response, additional solicitor general N. Venkataraman contested Kerala's claims, alleging misrepresentation of figures and pointing out that the state's consistent over-borrowing in recent years.

He raised concerns about Kerala's macroeconomic stability and the potential adverse effects of granting the requested ₹10,000 crore. According to the Union government, any financial stress faced by Kerala was due to mismanagement, citing substantial financial resources provided to the state, including payments to meet GST compensation shortfalls. The Union government noted the importance of public finance management in maintaining India's credit rating.