Fiscal battle

Syllabus: GS II, Subject: Polity, Topic: Federalism, Issue: Financial relations

Context: Supreme Court referred Kerala’s suit on borrowing limits to Constitution Bench

Key issues in the dispute:

  • Litigation delves into constitutional aspects of Centre-State relations.
  • Kerala challenges Article 293’s interpretation, arguing for limited Centre control over State borrowings.
  • Article 293 of the Indian Constitution deals with the borrowing powers of state governments.
  • Kerala disputes Union’s inclusion of off-budget borrowings in ‘Net Borrowing Ceiling’.
  • Union seeks to curb off-budget borrowings to maintain fiscal discipline for national interest.


  • With GST subsuming major revenue sources, fiscal space for states has become crucial.
  • The Supreme Court must decide the extent of Centre’s control over borrowing limits while respecting federal norms.
+1 advantage for mains (Data point): A 2018 amendment to the Fiscal Responsibility and Budget Management Act capped the ‘general government debt’ at 60% of the GDP, encompassing Central and State government debts.
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