As a test for the coalition government, the second-biggest ally of Prime Minister Narendra Modi is reportedly requesting INR 30,000 crore from India's federal budget this year to help fund projects in Bihar. The request was made by the Bihar administration, led by Nitish Kumar of the Janata Dal (United), during a pre-budget meeting with Finance Minister Nirmala Sitharaman last month, according to persons who asked not to be named since the talks are confidential. According to one of the persons, the administration has acknowledged receiving Bihar's request but has not yet determined how much funding would be given to the state this year.
Furthermore, as per Bloomberg News story from last week, N Chandrababu Naidu of the Telugu Desam Party, who is Modi's largest coalition supporter, has already requested more than 12,000 crore in funding for the state of Andhra Pradesh over the next several years.
The two coalition parties' combined budgetary demands amount to nearly half of the government's ₹2.2 trillion yearly budget for food subsidies. That illustrates the financial strain Modi is under as he strikes a balance between his friends' demands and his desire to reduce public debt. However, given that tax collections increased and the central bank handed the government a record dividend, he has some wiggle room in this year's budget. In the most recent elections, Modi's Bharatiya Janata Party lost an outright majority for the first time in ten years and now needs the backing of its allies to stay in power. 9.5% of the parliamentary seats held by Modi's National Democratic Alliance are held by the two coalition partners.
The federal government should permit the BJP and its allies to borrow more money in the states they control, according to their requests. States are required by fiscal laws to borrow no more than three percent of the gross domestic product of the region. According to persons with knowledge, Bihar has demanded an extra 1 percent of headroom without any limitations, while Andhra Pradesh has asked for 0.5 percent.
The JDU desires for Bihar as well:
1. The State's current budget includes funding for the construction of nine airports, four new metro lines, and seven medical institutions.
2. Funding for the construction of a thermal power plant around 200 billion rupees
3. More than 20,000 kilometers of roads need to be repaired.
According to sources in the local media, Bihar has requested special category status, which would grant the state preferential treatment when it comes to obtaining cash from the federal government and receiving tax benefits. An inquiry for more details was not immediately answered by a representative for the Indian Ministry of Finance. JDU officials did not respond to requests for comment right away.
On July 23, the government is expected to unveil its budget for the fiscal year that ends in March 2025. In it, Sitharaman has promised to reduce the federal deficit to 5.1% of GDP. The International Monetary Fund assessed that the deficit for the previous fiscal year, when the federal and provincial budgets were combined, was 8.8%. Last week, S&P Global Ratings stated that a rating upgrade may occur if the total deficit is reduced to less than 7% of GDP.
The majority of India's states' income comes from a portion of taxes that the national government collects. Additionally, there are limitations on their borrowing capacity. Bihar was given a cash package of 1.25 trillion rupees during Modi's first term to support farmer welfare and the modernization of highways, railroads, and airports.
Due to their current financial difficulties, Bihar and Andhra Pradesh are less able to invest in development initiatives. According to official figures, almost 40% of Bihar's revenue stream is allocated for salary, pensions, and interest payments. With a per capita income predicted to be less than half the national average in the fiscal year 2023 - roughly ₹59,000 - the northeastern state is among the lowest in the nation.
