The Supreme Court of India has directed the Central government to provide a response within two weeks to a suit filed by the Kerala state government. The suit accuses the Central government of encroaching upon Kerala's exclusive powers to regulate its finances, particularly by imposing a ceiling on net borrowing.

The bench comprising justices Surya Kant and KV Viswanathan instructed the Attorney General representing the Centre, R Venkataramani, to address both the suit and an urgent application filed by Kerala seeking measures to avert an impending financial crisis. The Attorney General, however, raised doubts about the validity of the suit, questioning its urgency and suggesting that it pertains more to the economic policy of the state rather than a legal matter.

Senior advocate Kapil Sibal, representing the Kerala government, countered these arguments, emphasizing the pressing need for financial resources and highlighting the adverse impact of borrowing restrictions on the state's fiscal discipline.

The bench, after hearing arguments from both sides, urged the Centre to submit its response, acknowledging the necessity even if the application is eventually dismissed. The next hearing on the matter is scheduled for February 13.

The suit, filed under Article 131 of the Constitution, asserts Kerala's constitutional right to fiscal autonomy, arguing that the state possesses the authority to regulate its finances as per various constitutional provisions. It specifically cites correspondence from the Centre and amendments to fiscal legislation as evidence of interference in the state's financial affairs.

The suit underscores the urgency of the situation, pointing to a significant outstanding amount owed by the Centre to Kerala as a result of financial constraints stemming from borrowing limitations.

According to the suit, the Centre's actions not only infringe upon Kerala's autonomy but also violate the federal structure of the Constitution. It contends that borrowing limits are regulated by Kerala's own fiscal responsibility legislation, emphasizing the state's exclusive authority in balancing its budget and managing fiscal deficits.