For Prime Minister Modi, the demands made by his allies might put strain on his efforts to rein in the country’s fiscal deficit
Prime Minister Narendra Modi’s top allies in the central government have put forward major fiscal demands ahead of the Union Budget scheduled to be presented on 23 July. The financial packages expected by Chandrababu Naidu’s Telugu Desam Party (TDP) and Nitish Kumar’s Janata Dal (United) amount to a cumulated sum of more than Rs 1,30,000 crore, according to Bloomberg.
Naidu and Kumar are chief ministers of Andhra Pradesh and Bihar, respectively, and enjoy vast bargaining power within the newly elected coalition government at the Centre.
After meeting Naidu in the national capital last week, Modi has “agreed in principle” to meet TDP’s demand for special financial assistance, Bloomberg reported, citing unnamed sources. Although the demand from the Andhra Pradesh CM is for more than Rs 1,00,000 crore, the exact amount of disbursement to be made in the upcoming budget is yet to be decided.
Similarly, Kumar’s JD(U) has put forward a request for Rs 30,000 crore in central assistance to fund projects in the state of Bihar.
The combined demand from Naidu and Kumar equals almost 93 per cent of the Finance Commission (FC) transfers made by the Centre in FY 2023-24. FC transfers are the means by which the central government shares its tax revenue with all the states.
To be sure, the financial assistance required by the top allies is expected to be disbursed over a period of years and not within the current fiscal alone. For example, TDP has demanded Rs 50,000 crore to build the new capital city of Amaravati. Out of this sum, Rs 15,000 crore is expected to be allocated in the upcoming budget, as per the Bloomberg report.
Notably, both the allies have raised the demand of increasing the borrowing limits prescribed to states. At present, the borrowing limits are capped at 3 per cent of a state’s gross domestic product (GDP).
While JD(U) wants an additional headroom of 1 per cent, the TDP has requested for the limit to be increased by 0.5 per cent. The report also mentioned that the TDP has requested Rs 15,000 crore over the next five years to clear its overdue debt.
In an interaction with Outlook Business last month, TDP spokesperson Jyothsna Tirunagari had hinted at such a demand. “We are apprehensive about the unsustainable debt that the state has been taking over and instead we want to create a more sustainable financial system. We will need central assistance for this, [there is] no other way around,” she said. Andhra Pradesh’s debt stood at 33 per cent of its GDP at the end of the last fiscal.
For Prime Minister Modi, the demands made by his allies might put strain on his efforts to cut down on government expenditure. While the Centre’s fiscal deficit for FY 2023-24 stood at 5.6 per cent of its GDP, it aims to bring it down further to 5.1 per cent. But at the same time, Modi cannot afford any disaffection among his key allies to maintain his hold over the central government.
In the general election results announced last month, Modi’s Bharatiya Janata Party (BJP) failed to secure a simple majority of 273 seats in the Lok Sabha for the first time in a decade. As a result, Modi is dependent on the support of TDP and JD(U) to continue as the prime minister for a third term. Together, TDP and JD(U) account for close to 10 per cent of the overall tally enjoyed by the ruling coalition.