Budget 2024: Fiscal assistance tops states’ wish list

Demands for special packages and greater funds for building infrastructure without reform-linked milestones topped the wish list of state chief ministers and finance ministers who met Union finance minister Nirmala Sitharaman for pre-budget consultations on Saturday.

Sitharaman is expected to present the Union Budget 2024-25 in July.

Kerala finance minister K. N. Balagopal sought a special package of ₹24,000 crore from the Centre to address the state's liquidity crunch. In his speech, a copy of which was shared with the press, he said the package could be scheduled over a period of two years from 2024-25.

Balagopal said that in a federal set up, the fiscal consolidation path of a state doesn’t only depend on the state’s own efforts and expenditure, but it also depends heavily on the transfer of resources from the Centre and the distribution fiscal powers.

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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 problems 

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 request that the Government of India may review them.”

The minister added the state is currently borrowing much lower compared to the limits set for the state on account of changes introduced in the calculation of the borrowing ceiling such as inclusion of public account and the borrowings of state-owned enterprises, the minister said. “Hence, this policy has to be reversed.”

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Chhattisgarh finance minister O. P. Choudhary sought higher funds for states’ infrastructure creation without reform-linked milestones.

In the Interim Budget 2024-25 announced on 1 February, the Centre earmarked ₹1.3 trillion for special assistance to states for infrastructure creation, similar to 2023-24. But under Part-1 allocation, which is not linked to reforms, the amount has been revised from ₹1 trillion to ₹55,000 crore, the minister said in a statement. 

Choudhary urged Sitharaman to maintain the allocation at ₹1 trillion like previous years as it will support ongoing capital projects effectively.

He suggested the remaining amount can be kept for state capital as reform-based incentives and for special projects. The ‘special assistance to states for capital investment’ scheme was launched in 2020-21 to help states after the pandemic. Under the scheme, the Centre provides 50-year interest-free loans to states.

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Andhra Pradesh finance minister Payyavula Keshav told reporters that he raised as many as 20 issues. “We have asked for Amaravati as the capital, funds for state infrastructure, industrial incentives, major road and port projects and backward district packages for the state. We have also asked for aqua parks, textile parks and green energy corridors for the state. This is in view of the support for the state after the bifurcation.”