[As per article 293 of the Constitution: A State may not without the consent of the Government of India raise any loan if there is still outstanding any part of a loan which has been made to the State by the Government of India]

Kerala in its ‘Fiscal Responsibility Act 2003’ has put a limit of fiscal deficit of 3% (of GSDP) and in some cases it can go to 3.5%. The fact is, Kerala Govt. has already borrowed from Centre (there are certain pending dues which Kerala owe to Centre).

Now, Kerala wants to borrow more from the market (in which case its fiscal deficit will increase beyond 3% or 3.5% which Kerala may do by amending its Fiscal Responsibility Act) for expenditure on social sectors. But since Kerala has already (pending) debt from Centre, So centre is not giving permission to Kerala for further borrowing because centre wants Kerala to keep its fiscal deficit limit to 3% of GSDP.

The above issue is being debated in Supreme Court. Now, Supreme Court on Monday referred the case to a Constitution Bench.


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