The restriction under Article 293 of the Constitution on State borrowing powers, though constitutionally valid, may hinder fiscal autonomy of States and disrupt cooperative federalism. Discuss in the light of recent developments. (Answer in 250 words)

Recently Kerala government filed case against Union government for permission to borrow imposed under Article 293 on state borrowing having issue of fiscal federalism. Article 293: 1) States need union government approval before borrowing in case any amount pending due on payable to central government 2) State Governments need cannot borrow from outside the India 3) Central government imposed limit of 3.5% of GDP on state borrowing

Significance of restriction on state borrowing: Fiscal stability - Excessive borrowing impact fiscal stability of states and India. Fiscal stability of states and India (Sri Lanka and Venezuela case) 2) Intergenerational equity: Future high debt burden and interest payment obligation (eg Punjab debt issue) 3) Reduce spending on freebies - Promote quality expenditure 4) Impact on India's credit rating - High borrowing by state can impact India's overall debt credit rating. → Overall debt 81% of GDP. v/s target 60%. Issues with Article 293: 1) Reduce state's fiscal space: State government lack fund for development and social welfare 2) Misuse by central government against opposition ruled states 3) High cost and surcharge: 32% of Total centre tax pool reducing devolution 4) Central sponsored scheme: Further reduce state autonomy and funds for special development needs. → one fit all approach 5) Conflicts between centre and state: Lifting after burden

Measures: 1) 14th Finance commission - Fiscal guiding path → less limit 2) Establish Fiscal council for monitoring GSP targets suggested 3) Promote dialogue through Inter state council India aimed to insure debt sustainability but at same time state government fiscal autonomy need to be protected through reforms and increased devolution.

— Jayant Garg · AIR 64