State-Specific Budget Demands 2024: Fiscal Assistance

During pre-budget consultations on Saturday, state chief ministers and finance ministers expressed their top priorities as the need for special packages and increased funding for infrastructure development, contingent upon the achievement of reform-related milestones.

Nirmala Sitharaman is expected to present the Union Budget for the fiscal year 2024-2025 in the month of July. Kerala's finance minister, K. N. Balagopal, has requested specific financial assistance of ₹24,000 crore from the central government to resolve the state's current funding shortage. During his speech, he stated that the package could be disbursed over two years, starting in 2024-25.

Balagopal stated that in a federal system, the process of achieving fiscal consolidation in a state is not solely determined by the state's own efforts and spending but also relies significantly on the allocation of resources from the central government and the distribution of fiscal powers.

The minister said the state has taken all possible measures to enhance its own tax and non-tax revenue. “Despite these efforts, the state government is going through a very serious liquidity crunch,” he added.

Liquidity issues

Balagopal attributed the liquidity problems to a reduction in the state’s share in the Centre’s divisible pool of tax revenue over successive Finance Commission periods, goods and services tax (GST) rate cuts, cessation of GST compensation, tapering of revenue deficit grants from the Centre and restrictions on open market borrowings.

“Kerala is of the view that this additional restriction on open market borrowing travels beyond the scope of the road map for fiscal consolidation laid down by the 15th Finance Commission and requests that the Government of India may review it.”

He stated that the state's borrowing is currently significantly below the limits set for the state. This is due to changes made in the calculation of the borrowing ceiling, which now includes the public account and the borrowings of state-owned enterprises. "Therefore, it is imperative to reverse this policy," he said.

Chhattisgarh's finance minister, O. P. Choudhary, requested increased funding for the development of infrastructure in states without the requirement of achieving specific reform-related goals.

In the Interim Budget 2024-25, which was announced on 1 February, the Centre allocated ₹1.3 trillion for providing special assistance to states for the purpose of infrastructure development, mirroring the allocation made in the previous fiscal year (2023-24). However, the minister stated that the allocation under Part-1, which is not connected to reforms, has been reduced from ₹1 trillion to ₹55,000 crore.

Choudhary requested Sitharaman to maintain the allocation at ₹1 trillion, as in previous years, to effectively support ongoing capital projects. He proposed allocating the remaining funds for state capital as incentives for reform and for special projects. The special assistance to states for the capital investment scheme was initiated in the fiscal year 2020-21 with the objective of providing support to states in the aftermath of the pandemic. As part of the program, the government offers states interest-free loans that last for 50 years.

According to Payyavula Keshav, the finance minister of Andhra Pradesh, he raised a total of 20 concerns during his discussion with reporters.

‘’We have requested Amaravati to be designated as the capital, financial support for state infrastructure, incentives for industrial development, significant projects for roads and ports, and assistance packages for underdeveloped districts in the state. In addition, we have requested the establishment of aqua parks, textile parks, and green energy corridors in the state. This is in consideration of the assistance provided to the state following its division,’’ he quoted.