SC asks Centre to consider giving one-time package to Kerala by March 31

The bench said more rigid conditions may be put in future budgets and, in the meantime, a special package be given to the state before March 31. Additional Solicitor General N Venkataraman, appearing for the Centre, said the offsetting balance is having a cumulative effect on Kerala's finances and the state deferred fiscal consolidation twice. Offsetting balance is a minimum credit balance that a bank may require a borrower to keep in deposit as a condition for granting a loan.

"We are really constrained and our hands are tied," the ASG said.

"We are not experts, cannot tell you the way out," the bench told the central government's law officer.

The bench had said on March 6 that fiscal mismanagement by states is an issue the Union government has to be concerned about as it impacts the nation's economy.

It had advised the Centre and the Kerala government to iron out their differences on a cap on net borrowing by the southern state.

The apex court had made the observation while it was hearing a suit filed by the Kerala government accusing the Union of India of interfering in the exercise of its "exclusive, autonomous and plenary powers" to regulate the state's finances by imposing a ceiling on borrowing.

In an original suit filed under Article 131, the Kerala government has said the Constitution bestows fiscal autonomy upon states to regulate their finances under various articles, and the borrowing limits are regulated by a state legislation.

In a note submitted before the top court, the Centre had said uncontrolled borrowing by states would affect the credit rating of the whole country and that the fiscal edifice of Kerala has been diagnosed with "several racks".