SC to set up five-judge Constitution bench to discuss ceiling on borrowing by States | Current Affairs | Vision IAS
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SC to set up five-judge Constitution bench to discuss ceiling on borrowing by States

Posted 31 Aug 2024

2 min read

The SC will examine if the states have an enforceable right to raise its borrowing limit over the cap fixed by the Centre.

  • It will also examine if such restrictions are in conflict with the role of RBI as public debt manager. 
  • The reference to a Constitution Bench was made earlier this year on the basis of an original suit filed by Kerala government. 

Impact of NBC on States

  • Violation of Principles of Federalism : Fiscal decentralization is an important aspect of federalism. 
    • Fiscal Decentralization refers to devolving financial powers to regional and local governments to achieve good governance. 
  • Impacting spending on Developmental expenditure by States: Mainly constituting social- economic services that have witnessed an increase over the years (RBI). 
  • Limited sources of Revenue: Power to levy taxes largely rests with the Union. Further, the proceeds from Cess and Surcharge are not shared with the states.

Provisions related to State Borrowing

  • Constitution (Article 293): Extends power to states to borrow within India (not abroad) upon the security of the Consolidated Fund of the State.
    • Centre may extend loans to the State or give guarantee on the loans raised by it.
    • However, States cannot raise any loan without the consent of the Centre in case of an outstanding debt. 
  • Net Borrowing Ceiling (NBC) for States is fixed at 3% of Gross State Domestic Product (GSDP) for FY 2023-24 based on the 15th Finance Commission recommendations.
  • Tags :
  • Fiscal Federalism
  • Centre State relations
  • Fiscal Decentralization
  • Net Borrowing Ceiling
  • Article 293
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