On February 8, Kerala Chief Minister Pinarayi Vijayan will lead a protest in New Delhi against the Centre for “placing Kerala on a financial embargo”. The Kerala government has accused the Centre of pushing the State into a severe financial crisis by imposing a limit on its borrowings. Kerala has moved the Supreme Court contending that the Centre’s imposition of a Net Borrowing Ceiling (NBC) on the State, which limits borrowings from all sources, violates Article 293 of the Constitution. The wide array of constitutional issues that are now thrown open point at the severe erosion of fiscal federalism in the country.
What is net borrowing ceiling?
The NBC limits the borrowings of States from all sources including open market borrowings. The Centre has decided to deduct liabilities arising from the public account of the States to arrive at the NBC. In addition, borrowings by state-owned enterprises, where the principal and/or interest are serviced out of the Budget, or through assignment of taxes or cess or any other State revenue, are also deducted from the NBC.
