Jawahar Lal Gupta, C.J.
1. Do the provisions embodied in Articles 292 and 293 of the Constitution debar the Central and the State Governments from borrowing any money beyond the amount standing to their credit in the Consolidated Fund? This is the short question that arises for consideration in this petition. A few facts as relevant for the decision of this case may be noticed.
2. The petitioner is the President of Nishabdha Bhooripaksham. When translated, the organization means - 'the silent majority.' It was started as an association of public-spirited persons. It is now a political party. The petitioner himself is an assessee. He complains that the Union of India and the State Government of Kerala are arbitrarily borrowing money in violation of the 'letter and spirit of Articles 14, 292, 293 and 39(b) of the Constitution......' The State Government is throwing away 'its precious largessein gross violation of Art. 14 in the form of retention of excess employees ....' As aresult, the total liabilities of the State Government during the five years from 1996-97 to 2000-01 have 'grown by 108%'. According to the report submitted by the Comptroller and Auditor General 'only 10% of borrowings was available for investment and other expenditure after meeting the debt servicing obligations during 1996-97....However, during 2000-01, only 9% of the net funds was available for other expenditure.' A copy of the report 'showing the time series of State Government finances' has been produced as Ext. P1.
3. The petitioner alleges that 'revenue expenditure...... is whopping 93% of thetotal expenditure.' The 'non-plan expenditure salaries constituted 40% (Rs.3969 crores) while interest payment was 23% (Rs. 2258 crores) during 2000-01.' The capitalexpenditure is 'pegged at a dismal 5% in 2000-01.'
4. In the year 2000-01 'the total amount standing to the credit of Consolidated Fund of the State of Kerala was Rs. 11004 crores. Outstanding public debt burgeoned from 2583.30 crores as of March 1997 to Rs. 13729.23 crores as of March 2001. Internal debt of the State increased by 157% to Rs. 7627.34 crores in 2000-01. The Government of Kerala has incurred huge unpaid liability of Rs. 820 crores of contractor dues. The Government has also significant contingent liability in the shape of outstanding guarantees of Rs. 9553 crores. The amount of public debt is more than Rs. 30000 crores.
5. The petitioner maintains that the State Government cannot be permitted to borrow beyond 'the extent of the Consolidated Fund'. It has made no law 'to fix the limits within the Consolidated Fund of the State'. At present 'the accumulated debt of the State is thrice the Consolidated Fund....' In view of the provisions of Article 293(3), the 'State cannot borrow if there are loans remaining unpaid to the Government of India without its consent'. According to the petitioner, the State has 'a large number of Government employees who are patently in excess. Any rational Government would as a permanent solution to the problem of wasteful revenue expenditure which becomes recurring, downsize the strength of the Government. The fact that there are a huge number of excess posts is admitted by none less than the Chief Minister as being not less than 70,000.' The jobs with the Government 'constitute wealth doled out by a modern welfare State.' The funds being scarce, the Government cannot be permitted to 'maintain any person found to be' in excess of the required needs. The action of the Government in allowing such persons to continue infringes the duty to act fairly.
6. The Government has invested substantial funds in the statutory corporations and companies. Out of the four statutory corporations, three are running in loss. Similarly, out of the 94 Government companies, 57 are in loss. The accumulated losses are Rs. 2013.09 crores. Despite that the corporations and companies are being maintained without laying down any norms and in violation of Article 14 of the Constitution.
7. The pattern being followed by the Union Government is also similar. It is begging and borrowing. As on March 31,2000, the Consolidated Fund of the Union of India was Rs. 704665.90 crores. The public debt of the Union was Rs. 772691.42 crores. This is patently impermissible under Article 292 of the Constitution. Still further, the petitioner alleges that the Government of India continues to give loans to the State Governments in violation of the provisions of Article 293 (3) and (4). The Government 'is giving consent without any application of mind to relevant aspects and without imposing any meaningful or fair conditions.'
8. The Government employees constitute a small percentage of the total population. Of the normal 5 lakhs employees in the State of Kerala, about one-fifth are in excess. The adamant 'refusal to take steps to retrench them clearly constitute an arbitrary action. The Government continues to take loans. These are being spent on payment of salaries and running the sick units. The action is violative of Articles 14, 39(b), 292 and 293 of the Constitution. The petitioner through representations has pointed out these illegalities; copies of which have been produced as Exts. P3 and P4. No action having been taken, he has approached this Court through the present petition.
9. On the above premises the petitioner prays that this Court may direct the Union of India and the State of Kerala to 'forbear from borrowing money in excess ofits Consolidated Fund ......'. He further prays that the Union of India be directed to'forbear from giving consent' for grant of loans to the State of Kerala. He further prays that the State of Kerala be directed to take prompt and effective steps to retrench the surplus employees, to close down the sick public sector units and to frame legislation within the meaning of Article 293(1) of the Constitution. In the alternative, it is also prayed that this Court should frame guidelines 'regarding the limits upon borrowing power.'
10. A counter affidavit has been filed on behalf of the first respondent by Ms. V. Geetha, Deputy Director, Minister of Finance. The averments as made in the petition have been controverted. It has been averred that the Consolidated Fund of India is a floating amount. The Constitution empowers the Government to borrow upon the security of the Consolidated Fund. The allegation that the Central Government has been granting permission to the State 'to raise loans for meeting revenue expenditure like salary, interest etc. without application of mind to the relevant aspects is not correct.' The levels of borrowings are approved under the scheme of financing of the annual plan of the State. It is in this context that permission under Article 293(3) of the Constitution is given to the State Governments to restrict these borrowings to prudent levels for meeting the plan expenditure, which is meant for the development of the State. The balance of loan pending recovery from the State is also considered while granting such permission. Under the Constitution, the State Governments are responsible for 'the financial management for which they are accountable to their respective legislatures.' The Government of India has created the States Fiscal Reforms facility. Under this facility, the States have to draw up their medium term fiscal reform programs 'aimed at improvement in the revenue balance through increasing tax and non tax receipts, re-prioritization of expenditure, targeting and phasing out non merit subsidies, power sector reforms, public sector restructuring and keeping the borrowings of States within prudential limits.' The Government of Kerala had drawn up the programs to control the fiscal deficit without sacrificing the growth of the State's economy.
11. On the basis of the above, the Union of India maintains that it has been discharging its constitutional obligations with due diligence and promptitude. It prays that the Writ Petition be dismissed.
12. A counter affidavit has been filed on behalf of the second respondent by the Secretary, Department of Finance. It has been averred that when 'the present Ministry came to power, the State was under severe financial crisis .....' The opening cash balance was Rs.(-) 372.96 crores. In view of the financial stringency, a revised budget was presented. The plan outlay for 2001-02 was reduced to Rs. 3015 crores. Later on, the Government was forced to make a further cut of 25% on the reduced plan outlay. A series of orders curtailing revenue expenditure were issued. The perksof Government employees were curtailed. As a result of the efforts, at the end of the financial year, the revenue receipts stood at Rs. 9056.39 crores compared to Rs. 8730 crores during the previous year. The revenue expenditure was Rs. 11662 crores. The deficit was brought down to Rs. 2605 crores compared to 3147 crores during 2000-01, The year ended with a closing balance of Rs. (-) 147 crores. On March 31, 2002, the outstanding debt and other interest bearing obligations of the Government of Kerala was Rs. 26487.33 crores. On account of the growth in fiscal deficit, the Government had to go in for borrowings. In view of the acute financial crisis, the Government 'decided to implement tough austerity measures to bring down expenditure and to increase revenue and revenue collection. Copies of various Government orders periodically issued have been produced on record. Curbs were imposed on Government vehicles and telephone utilities. Vide order dated June 3, 2002, additional economy measures regarding 'discontinuance of encashment of leave surrender was made applicable to all public sector undertakings including KSEB (Kerala State Electricity Board) and other statutory undertakings, welfare boards and co-operative societies. Vide order dated July 4,2002, it was directed that the candidates already recommended by the Public Service Commission shall be appointed 'only after obtaining prior clearance from the Committee of the Secretary to identify surplus staff in Government departments.' Vide order dated September 24, 2002, it was ordered that 'Surplus Manpower Cell be operated at the State level in P & ARD and also ordered that no department will report any vacancy to Kerala Public Service Commission without clearance from the above Cell.' The respondent further states that the Government is earnestly engaged in extracting itself out of the precarious financial situation. The measures are being reviewed. Additional measures will be adopted as and when needed. On these premises, the respondent prays that the Writ Petition be dismissed.
13. The petitioner has filed separate rejoinders to the two counter affidavits.
14. Mr. K.M. Joseph, learned counsel for the petitioner contended that in view of the provisions of Articles 292 and 293, the respondents are debarred from borrowing beyond the amounts available in the respective Consolidated Funds. The constitutional limits have already been crossed. Thus, the respondents should be debarred from enhancing their debts. He further contended that the first respondent, viz., the Government of India has been sanctioning loans to the State Government without any application of mind or imposition of conditions. It should be debarred from doing so. Learned counsel also submitted that there was wasteful expenditure on payment of salaries to the employees who were in excess of the actual needs of the State. Similarly, exorbitant amount of money is being spent on sick public sector undertakings. These impose an avoidable burden on the State's meager resources. Directions for termination of services and dis-investment of the public sector undertakings deserve to be issued.
15. The claim made on behalf of the petitioner was controverted by Mr. M. Ajay who appeared for the second respondent. He submitted that the Consolidated Funddoes not represent the wealth of the Nation. The action of the respondents was not violative of the constitutional provisions. The payable debt of about Rs. 26,000 crores was not based on the security of the Consolidated Fund. The corporations take loans under their own agreements. The State only furnishes guarantee. The loans were taken in exercise of the executive power. The State Government has introduced a series of fiscal reforms. It is making all out efforts to reduce the expenditure and to increase the revenue receipts. In the circumstances of the case, no ground for interference by the Court is made out.
16. In view of the contentions raised by the learned counsel, the short question that arises for consideration is - Have the respondents acted arbitrarily and in violation of the provisions of Articles 39(b), 292 and 293 of the Constitution?
17. The Constitution of India embodies the primary law of the land. It contemplates three kinds of functions. These can be broadly described as Legislative, Judicial and Executive. The legislative and judicial functions are well understood. The Legislature legislates. The Judiciary adjudicates. But the executive functions defy an exact definition. Broadly, it can be said that whatever remains after the exclusion of the legislative and judicial functions falls within the executive authority. The executive functions are the residue that remains after the legislative and judicial functions are taken away.
18. The Constitution defines the scope of executive power of the Union and the State Governments. Broadly speaking, by virtue of the provisions of Articles 73 and 162, the executive power extends to all matters with respect to which the Parliament and the State Legislature have the power to make laws. This executive power is broad. By virtue of the Entries 35 and 43 in Lists I and II of the VIIth Schedule, the executive power of the Union and the States shall even extend to the public debts. However, it appears that to put the matter beyond any shadow of doubt and to enforce a kind of fiscal discipline, the framers of the Constitution made specific provisions in respect of 'borrowing' by the State and the Union Governments. These are contained in Chapter n of Part XII of the Constitution in Articles 292 and 293 of the Constitution. These provide as under:-
'292. Borrowing by the Government of India:- The executive power of the Union extends to borrowing upon the security of the Consolidated Fund of India within such limits, if any, as may from lime to time be fixed by Parliament by law and to the giving of guarantees within such limits, if any, as may be so fixed.
293. Borrowing by States:-(1) Subject to the provisions of this article, 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 and to the giving of guarantees within such limits, if any, as may be so fixed.
(2) The Government of India may, subject to such conditions as may be laid down by or under any law made by Parliament, make loans to any State or, so long as any limits fixed under Article 292 are not exceeded, give guarantees in respect of loans raised by any State, and any sums required for the purpose of making such loans shall be charged on the Consolidated Fund of India.
(3) A State may not without the consent of the Government of India raise any loan if there is still outstanding any part of a loan which has been made to the State by the Government of India or by its predecessor Government, or in respect of which a guarantee has been given by the Government of India or by its predecessor Government.
(4) A consent under Clause (3) may be granted subject to such conditions, if any, as the Government of India may think fit to impose.'
A perusal of Article 292 shows that in exercise of the executive power, the Central Government is empowered to borrow 'upon the security of the Consolidated Fund of India.' The limits, if any, can be 'fixed by Parliament.' Such limits can be imposed only 'by law.' It is further clear that such law can impose limits even in respect of giving of guarantees. Similarly, by Clause (1) of Article 293, the States are placed in an identical position. In other words, the two provisions empower the Governments of India and the States to borrow money. The Constitution does not say that the borrowing has to be 'upto' the amount of money available in the Consolidated Fund. The framers have used the expression 'upon the security of. Still more, it is only by law that the Central and the State Legislatures can impose limits upon the borrowing. Such limits are not embodied in Articles 292 and 293 of the Constitution. Thus, the contention that the two provisions place an embargo on the power of the executive to borrow cannot be sustained. In fact, the plain language suggests that the two Articles primarily contain enabling provisions. These authorize the respective Governments to borrow. Also to enact laws to regulate the borrowing. These do not place a limit or an embargo.
19. In this context, it deserves notice that the Consolidated Fund does not represent a concrete figure. It is truly floating. Equally, the Consolidated Fund does not represent the entire wealth of the Nation or even of a State. It is only a figure showing the receipts at a given point of time. Still further, the Constitution confers power on the Parliament and the State Legislatures to impose limits only by making law. Till such a law is made, it cannot be said that the Governments are legally debarred from borrowing.
20. Mr. Joseph was at pains to point out with reference to the debates of theConstituent Assembly that initially the expression used was 'the revenues' instead of the Consolidated Fund. It is undoubtedly so. However, after discussion the expression Consolidated Fund was used. It was also pointed out that 'the entire Consolidated Fund .... will be the security.' It means that it will only be a general security of the credit of the people of India. In other words, even the Constitution makers had not laid down any definite security for the taking of loans.
21. Mr. Joseph contended that by virtue of Clauses (2) to (4) of Article 293, the Government of India is under a duty to ensure that the limits regarding loans to a State are not exceeded. A watch has to be kept on the outstanding part of the loans and consent for further loans can be granted subject to definite conditions.
22. On a perusal of Clause (2) it is clear that the Government of India is competent to advance loans to any State. It can also give guarantees in respect of the loans raised by the State. While doing so, it can impose conditions, which should be in consonance with law, if any made by the Parliament. Under Clause (3) the Government of India can regulate the loans to be raised by the State Government by keeping in view the outstanding amounts advanced by it or in respect of which it has furnished a guarantee. While granting consent, the Central Government can impose conditions. These are all matters regarding which the Central Government has to take a decision in view of the factual position. The Constitution does not place any mandatory embargo on the powers of the Central Government.
23. Mr. Joseph contended that the Central Government had been granting consent without application of mind.
24. We are unable to accept this contention. The petitioner's allegations as made in the petition have been categorically denied in the counter affidavit. Nothing has been pointed out from the records to show that the Central Government had not exercised due care while examining the issue of loans to the State.
25. It was then contended that the State of Kerala is indulging in extravagant expenditure. It continues to employ thousands of persons unnecessarily. Even expenses have been incurred on sick and unproductive public sector undertakings. Thus, it was prayed that a direction for abolition of posts and disinvestment of public sector undertakings be issued.
26. In the counter affidavit filed on behalf of the second respondent details regarding the fiscal reforms have been given. A series of measures have been adopted by the Government to reduce the revenue expenditure. Despite that the deficit continues. It has been pointed out on behalf of the second respondent and we think rightly that the State had inherited an almost empty treasury. The Government faced an acute paucity of funds. The facts as revealed in the written statement support the plea of the State. In this situation, it had no alternative except to borrow. The contention is clearly well founded.
27. It is undoubtedly true that the country is under debt. The expenditure on salaries and payment of interest etc. is high. The bureaucracy today is bloated in size. It may be possible to contend that the taxpayer pays a heavy price for the governance of the country and that he does not get his rightful due. The services are notproportionate to what the citizen pays. It is also true that there is avoidable expense on sick and unproductive public sector undertakings. The losses are in the region of Rs. 2,000 crores. In view of the prevailing scenario, a national audit is undoubtedly the need of the hour.
28. Today, deficit is a common word. Everyone talks of a rigid economy but relishes free spending. Generally, in a 'Government based on popular ignorance, the politicians run and the taxpayers sweat.' In the present case, nobody can complain of ignorance. The petitioner has shown concern. In fact, it is a matter for national concern.
29. Truly, the less a Government costs, the more it is worth. A change in the national attitude is essential. We need to realise that economy in expense can by itself be a source of revenue. Reduction in expenditure on governance is a national imperative. As a people, we have to raise the resources and reduce the expenses. Till we do that, economic reforms are bound to remain a cry in the wilderness. Secondly, we need to develop a work culture. Everyone would acknowledge that hard work is respectable. Still, it is not popular. Something needs to be done. These are, however, questions of public policy. So far, the measures adopted by the State appear to be aimed at ensuring austerity. In the circumstances of the case, we cannot say that the State Government has acted capriciously or even carelessly. In fact, Mr. Ajay was at pains to point out despite having inherited an empty treasury, the State is managing the affairs. We can only say that there does not appear to be any good reason for complaint. Thus, no ground for interference is made out.
30. No other point was raised.
31. In view of the above, we find no merit in the petition. Consequently, it is dismissed. No costs.