Context:

The Kerala government recently moved to the Supreme Court for early setting up of a five-judge Constitution bench to hear its lawsuit against the Centre raising the issue of a ceiling on net borrowing. 

More on the News 

• Kerala government in the Supreme Court made an oral mention about the formation of a Constitution Bench to examine whether a State has an “enforceable right” to raise its borrowing limits over and above the cap fixed by the Union government under Article 293. 
• Normal Net Borrowing Ceiling for States fixed at 3% of Gross State Domestic Product (GSDP), for FY 2023-24 as recommended by Fifteenth Finance Commission.
• The reference to a Constitution Bench was made by a two-judge Bench in April this year on the basis of an original suit filed by Kerala.

Article 293 (Borrowing by States)

• The executive power of a State extends to borrowing within the territory of India upon the security of the Consolidated Fund of the State within such limits, if any, as may from time to time be fixed by the Legislature of such State by law.
• A State may not raise a loan without the consent of the Government of India if any part of a previous loan from the Government of India is still outstanding. 

• The reference had raised seminal questions on whether “fiscal decentralisation” was an aspect of Indian federalism and if central regulations fixing net borrowing ceilings on States were a violation of the principles of federalism.
• The two-judge Bench further asked the Constitution Bench to examine if the borrowing restrictions placed by the Centre were in conflict with the role assigned to the Reserve Bank of India as the “public debt manager”.
• Bench had also framed the question of whether it was mandatory for the Centre to have prior consultation with States for giving effect to the recommendations of the Finance Commission. 

Fiscal Decentralisation

• Fiscal decentralization is the process of giving more taxing and spending power to subnational/local governments to make decisions about spending and financing.
• It caught the attention of various countries only after 1990 and it promotes economic value, good governance, enhanced political participation at the local level etc.
• Fiscal Federalism in India is characterized by the constitutional demarcation of revenue and expenditure powers among the three levels of government. 

What is a constitutional bench?

• Under Article 145(3), whenever a matter of law arises that requires a provision of the Constitution to be interpreted, or there is a “significant legal question”, it is required to be decided by a Bench involving a minimum of five judges of the Supreme Court. Such a Bench is called a Constitution Bench.