{"id":99535,"date":"2024-04-04T19:46:35","date_gmt":"2024-04-04T14:16:35","guid":{"rendered":"https:\/\/pwonlyias.com\/stage\/?post_type=editorial-analysis&#038;p=99535"},"modified":"2024-04-05T15:07:27","modified_gmt":"2024-04-05T09:37:27","slug":"article-293-fiscal-battle","status":"publish","type":"editorial-analysis","link":"https:\/\/pwonlyias.com\/stage\/editorial-analysis\/article-293-fiscal-battle","title":{"rendered":"Article 293: Borrowing Powers of States"},"content":{"rendered":"<h2><span style=\"font-size: 18pt;\"><b>Context<\/b><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Recently, the <\/span><a href=\"https:\/\/pwonlyias.com\/stage\/upsc-notes\/supreme-court\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">SC<\/span><\/a><span style=\"font-weight: 400;\"> ordered a suit filed by Kerala challenging the Centre\u2019s<\/span> <span style=\"font-weight: 400;\">decisions <\/span><b>curtailing its borrowings, <\/b><span style=\"font-weight: 400;\">to a Constitution Bench.<\/span><\/p>\n<table style=\"width: 100.402%;\">\n<tbody>\n<tr>\n<th style=\"width: 100%; border-style: solid; border-color: #000000; background-color: rgba(184, 165, 217, 0.53); text-align: left; vertical-align: middle;\"><span style=\"color: #000000;\"><b>Relevance For Prelims: <\/b><span style=\"font-weight: 400;\">Article 293, Borrowing Powers of State, <\/span><a style=\"color: #000000;\" href=\"https:\/\/pwonlyias.com\/stage\/upsc-notes\/federal-governance\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Federalism<\/span><\/a><span style=\"font-weight: 400;\">, <\/span><a style=\"color: #000000;\" href=\"https:\/\/pwonlyias.com\/stage\/upsc-notes\/finance-commission\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Finance Commission<\/span><\/a><span style=\"font-weight: 400;\">, <\/span><a style=\"color: #000000;\" href=\"https:\/\/pwonlyias.com\/stage\/current-affairs\/rethinking-india-fiscal-federalism\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Fiscal Federalism In India<\/span><\/a><span style=\"font-weight: 400;\">, and <\/span><a style=\"color: #000000;\" href=\"https:\/\/pwonlyias.com\/stage\/editorial-analysis\/regional-disparities\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Resolving Regional Disparities<\/span><\/a><span style=\"font-weight: 400;\">, <\/span><a style=\"color: #000000;\" href=\"https:\/\/pwonlyias.com\/stage\/frbm-full-form\/#:~:text=The%20FRBM%20Act%2C%20or%20the,deficit%2C%20and%20maintain%20macroeconomic%20stability.\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">FRBM Act<\/span><\/a><span style=\"font-weight: 400;\">, and <\/span><a style=\"color: #000000;\" href=\"https:\/\/pwonlyias.com\/stage\/household-consumption-expenditure-survey\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">All India Household Consumption Expenditure Survey<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/span><\/p>\n<p><span style=\"color: #000000;\"><b>Relevance For Mains: <\/b><span style=\"font-weight: 400;\">Fiscal federalism and Centre-State Relations.<\/span><\/span><\/th>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2><span style=\"font-size: 18pt;\"><b>Article 293: Borrowing Powers of States<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>State&#8217;s Right to Borrow: <\/b><span style=\"font-weight: 400;\">It gives states the executive power to borrow money within the limits that the state legislature sets.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Central Government&#8217;s Role:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">The Central Government can give <\/span><b>loans and guarantees<\/b><span style=\"font-weight: 400;\"> to states.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">If a state already has loans from the Centre, the Centre needs to<\/span><b> give its consent before the state can borrow more, and the Centre c<\/b><span style=\"font-weight: 400;\">an add conditions to that permission.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>Supreme Court\u2019s Order<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Reduced Borrowing Limit:<\/b><span style=\"font-weight: 400;\"> The Centre reduced <\/span><b>Kerala&#8217;s net borrowing ceiling (NBC)<\/b><span style=\"font-weight: 400;\"> within the set <\/span><a href=\"https:\/\/pwonlyias.com\/stage\/frbm-full-form\/#:~:text=The%20FRBM%20Act%2C%20or%20the,deficit%2C%20and%20maintain%20macroeconomic%20stability.\" target=\"_blank\" rel=\"noopener\"><b>Fiscal Responsibility and Budget Management (FBM) Act<\/b><\/a><b> limits.\u00a0<\/b>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">This effectively limited the amount of money Kerala could borrow in a given financial year.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Citation of &#8220;Over-Borrowing&#8221;:<\/b><span style=\"font-weight: 400;\"> The Centre argued that Kerala had exceeded its borrowing limits in the previous financial yea<\/span><b>r, justifying a reduction for the current year.<\/b><\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>Major Reasons<\/b><\/span><\/h2>\n<ul>\n<li aria-level=\"1\">\n<h3><span style=\"font-size: 16pt;\"><b>FRBM Act Compliance:<\/b><\/span><\/h3>\n<ul>\n<li><span style=\"font-weight: 400;\">The Centre&#8217;s primary argument was that <\/span><b>Kerala violated the FRBM Act, <\/b><span style=\"font-weight: 400;\">which sets guidelines for fiscal prudence by states.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">These guidelines aim to maintain macroeconomic stability and<\/span><b> prevent excessive debt burdens on states.<\/b><\/li>\n<\/ul>\n<\/li>\n<li aria-level=\"1\">\n<h3><span style=\"font-size: 16pt;\"><b>Concerns over Kerala&#8217;s Financial Health:<\/b><\/span><\/h3>\n<\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The Centre expressed concerns about<\/span><b> Kerala&#8217;s increasing debt and fiscal deficit.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">They likely argued that the reduced borrowing limit was necessary to prevent further <\/span><b>financial strain and potential risks to the state&#8217;s economy.<\/b><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<ul>\n<li aria-level=\"1\">\n<h3><span style=\"font-size: 16pt;\"><b>Off-Budget Borrowing Practices:<\/b><\/span><\/h3>\n<\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Kerala has been accused of off-budget borrowings through entities like the <\/span><b>Kerala Infrastructure Investment Fund Board (KIIFB).<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The Centre may have considered these practices as attempts to<\/span><b> circumvent borrowing limits, <\/b><span style=\"font-weight: 400;\">adding to its decision to restrict the state&#8217;s borrowing further.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<table style=\"width: 100.099%;\">\n<tbody>\n<tr>\n<td style=\"width: 53.7149%; text-align: center; border-style: solid; border-color: #000000;\"><b>Arguments by Central Government:<\/b><\/td>\n<td style=\"width: 46.124%; text-align: center; border-style: solid; border-color: #000000;\"><b>The Kerala Government&#8217;s Counter Arguments:<\/b><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 53.7149%; border-style: solid; border-color: #000000;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Preventing Off Budget Borrowings: <\/b><span style=\"font-weight: 400;\">The Union government argues that public finance being a national issue, it wanted to p<\/span><b>revent the use of off-budget borrowings to bypass the borrowing ceiling.<\/b><\/li>\n<\/ul>\n<\/td>\n<td style=\"width: 46.124%; border-style: solid; border-color: #000000;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Constitutional Rights:<\/b><span style=\"font-weight: 400;\"> Kerala argued that the reduction of its borrowing limit infringed upon its constitutional rights as a state within the federal structure of India.<\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<tr>\n<td style=\"width: 53.7149%; border-style: solid; border-color: #000000;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Crowding out Effect:<\/b><span style=\"font-weight: 400;\"> The Central Govt also claims that unlimited borrowing by State governments will have the spillover effect of raising the<\/span><b> cost of borrowing and crowding out private sector borrowers.<\/b><\/li>\n<\/ul>\n<\/td>\n<td style=\"width: 46.124%; border-style: solid; border-color: #000000;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Need for Funds:<\/b><span style=\"font-weight: 400;\"> The state asserted the need for borrowing to fund development projects and welfare schemes.<\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<tr>\n<td style=\"width: 53.7149%; border-style: solid; border-color: #000000;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Issue with Current formula of Distribution:<\/b><span style=\"font-weight: 400;\">The current formula for distribution of revenue is seen as one that penalizes States that perform better on social indicators.\u00a0<\/span><\/li>\n<\/ul>\n<\/td>\n<td style=\"width: 46.124%; border-style: solid; border-color: #000000;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Discrimination: <\/b><span style=\"font-weight: 400;\">Kerala accused the Centre of applying its rules selectively.<\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<ul>\n<li aria-level=\"1\">\n<h3><span style=\"font-size: 16pt;\"><b>The Supreme Court Case:<\/b><\/span><\/h3>\n<\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Kerala challenged the decision in the <\/span><a href=\"https:\/\/pwonlyias.com\/stage\/udaan\/constitutional-provisions-of-supreme-court\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Supreme Court<\/span><\/a><span style=\"font-weight: 400;\">, but the Court declined to give interim relief.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The matter was referred to a five-judge Constitution bench, which means the legal validity of the Centre&#8217;s action is <\/span><b>still being adjudicated.<\/b><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>Conclusion<\/b><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">It is now up to the highest court to determine how strict the<\/span> <span style=\"font-weight: 400;\">Centre should be on <\/span><b>borrowing limits and giving consen<\/b><span style=\"font-weight: 400;\">t to hold States to their fiscal obligations without violating federal norms.<\/span><\/p>\n<span class=\"vc_button\"><b>Also Read: <\/b><a href=\"https:\/\/pwonlyias.com\/stage\/editorial-analysis\/southern-states-of-india\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Are Southern States of India Being Punished for their Success?<\/span><\/a><\/span>\n<p>\u00a0<\/p>\n<table style=\"width: 100.099%;\">\n<tbody>\n<tr>\n<th style=\"width: 100%; border-style: solid; border-color: #000000; background-color: rgba(184, 165, 217, 0.53); text-align: left; vertical-align: middle;\"><span style=\"color: #000000;\"><b>Mains Question:<\/b> <a style=\"color: #000000;\" href=\"https:\/\/pwonlyias.com\/stage\/mains-answer-writing\/discuss-the-contours-of-fiscal-federalism-in-india-what-measures-can-address-existing-imbalances-and-empower-states-financially-while-encouraging-cooperative-federalism-15-marks-250-words\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Discuss the contours of fiscal federalism in India? What measures can address existing imbalances and empower states financially while encouraging cooperative federalism? (15 Marks, 250 Words)<\/span><\/a><\/span><\/th>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>\u00a0<\/p>\n<table style=\"width: 100.023%;\">\n<tbody>\n<tr style=\"height: 36px;\">\n<td style=\"width: 2817.06%; vertical-align: middle; text-align: center; border-style: solid; border-color: #000000; height: 36px;\" colspan=\"2\"><span style=\"font-size: 18pt;\"><b>Must Read<\/b><\/span><\/td>\n<\/tr>\n<tr style=\"height: 30px;\">\n<td style=\"width: 54.4983%; vertical-align: middle; text-align: center; border-style: solid; border-color: #000000; height: 30px;\"><strong><a href=\"https:\/\/pwonlyias.com\/stage\/ncert-notes\/\" target=\"_blank\" rel=\"noopener\">NCERT Notes For UPSC<\/a><\/strong><\/td>\n<td style=\"width: 2762.57%; vertical-align: middle; text-align: center; border-style: solid; border-color: #000000; height: 30px;\"><strong><a href=\"https:\/\/pwonlyias.com\/stage\/daily-current-affairs\/\" target=\"_blank\" rel=\"noopener\">UPSC Daily Current Affairs<\/a><\/strong><\/td>\n<\/tr>\n<tr style=\"height: 30px;\">\n<td style=\"width: 54.4983%; vertical-align: middle; text-align: center; border-style: solid; border-color: #000000; height: 30px;\"><strong><a href=\"https:\/\/pwonlyias.com\/stage\/blogs\/\" target=\"_blank\" rel=\"noopener\">UPSC Blogs<\/a><\/strong><\/td>\n<td style=\"width: 2762.57%; vertical-align: middle; text-align: center; border-style: solid; border-color: #000000; height: 30px;\"><strong><a href=\"https:\/\/pwonlyias.com\/stage\/editorial-analysis\/\" target=\"_blank\" rel=\"noopener\">UPSC Daily Editorials<\/a><\/strong><\/td>\n<\/tr>\n<tr style=\"height: 30px;\">\n<td style=\"width: 54.4983%; vertical-align: middle; text-align: center; border-style: solid; border-color: #000000; height: 30px;\"><strong><a href=\"https:\/\/pwonlyias.com\/stage\/quiz\/\" target=\"_blank\" rel=\"noopener\">Daily Current Affairs Quiz<\/a><\/strong><\/td>\n<td style=\"width: 2762.57%; vertical-align: middle; text-align: center; border-style: solid; border-color: #000000; height: 30px;\"><strong><a href=\"https:\/\/pwonlyias.com\/stage\/mains-answer-writing\/\" target=\"_blank\" rel=\"noopener\">Daily Main Answer Writing<\/a><\/strong><\/td>\n<\/tr>\n<tr style=\"height: 30px;\">\n<td style=\"width: 54.4983%; vertical-align: middle; text-align: center; border-style: solid; border-color: #000000; height: 30px;\"><strong><a href=\"https:\/\/pwonlyias.com\/stage\/mains-previous-year-papers\/\" target=\"_blank\" rel=\"noopener\">UPSC Mains Previous Year Papers<\/a><\/strong><\/td>\n<td style=\"width: 2762.57%; vertical-align: middle; text-align: center; border-style: solid; border-color: #000000; height: 30px;\"><strong><a href=\"https:\/\/pwonlyias.com\/stage\/upsc-test-series-courses\/\" target=\"_blank\" rel=\"noopener\">UPSC Test Series 2024<\/a><\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"<p>It gives states the executive power to borrow money within the limits that the state legislature sets.<\/p>\n","protected":false},"author":11,"featured_media":99640,"menu_order":0,"comment_status":"open","ping_status":"open","template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"tags":[],"paper-wise":[],"subject":[],"acf":[],"_links":{"self":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/editorial-analysis\/99535"}],"collection":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/editorial-analysis"}],"about":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/types\/editorial-analysis"}],"author":[{"embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/comments?post=99535"}],"version-history":[{"count":3,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/editorial-analysis\/99535\/revisions"}],"predecessor-version":[{"id":99646,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/editorial-analysis\/99535\/revisions\/99646"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/media\/99640"}],"wp:attachment":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/media?parent=99535"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/tags?post=99535"},{"taxonomy":"paper-wise","embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/paper-wise?post=99535"},{"taxonomy":"subject","embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/subject?post=99535"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}