Centre Tells Supreme Court Kerala Faces Financial Strain

• 07 Feb 2024

In a note recently presented to the Supreme Court, the Centre highlighted Kerala's precarious financial state, asserting that the state's debts have repercussions on the entire country's credit rating.

Key Points

• Kerala's Financial Health: The Attorney General informed the Supreme Court that Kerala ranks among the "most financially unhealthy States," with its fiscal structure exhibiting numerous vulnerabilities.
• Poor Financial Indicators: The Centre expressed concerns over Kerala's fiscal management, citing indicators that point to deficiencies in handling public finances and highlighting the need for improved financial governance.
• Central Government Assistance: Despite significant financial aid provided by the central government, including funds exceeding the recommendations of the 15th Finance Commission and a substantial GST compensation shortfall payment, Kerala continues to face financial strain.
• Impact of State Debt: The Centre emphasized that irresponsible borrowing by states for unproductive expenditure could lead to a reduction in development funds, impoverishment of citizens, and loss of both state and national income.
• Federal Structure Concerns: The note was in response to Kerala's lawsuit against the Centre, alleging violations of federal governance structures and detrimental impacts on the state's economy. Kerala urged the court to safeguard its financial autonomy.
• Future Debt Projections: The Reserve Bank of India projected Kerala, along with Rajasthan and West Bengal, to exceed the debt-GSDP ratio of 35% by 2026-27, signaling a looming financial crisis if corrective actions aren't taken promptly.