Budget 2024-25: After Naidu, Nitish Seeks Rs 300 Bn From Modi Govt

Nitish Kumar led Bihar government, has requested increased funding of Rs 300 billion (USD 3.6 billion) and borrowing flexibility from the central government during a pre-budget meeting with Finance Minister Nirmala Sitharaman last month, according to a Bloomberg report.

The JDU has asked for budget provisions for building nine airports, four new metro lines, seven medical colleges, a Rs 200 billion thermal power plant, and repairs across over 20,000 km of roads. Bihar has also requested special category status, which would provide preferential access to central government funds and tax breaks, according to local media.

The government has received Bihar's request but has not yet decided on the allocation for the state this year, the media report added. Meanwhile, N Chandrababu Naidu of the Telugu Desam Party, Prime Minister Modi's key ally, has requested over Rs 1 Trillion  (USD 12 billion) in aid for Andhra Pradesh, as reported by Bloomberg last week.

The combined fiscal demands from these two coalition partners amount to more than half of the government's annual food subsidy budget of Rs 2.2 trillion. This highlights the fiscal pressure on Modi as he balances the demands of his allies with efforts to reduce government debt. The prime minister has some flexibility in this year's budget, bolstered by a record dividend from the central bank and increased tax revenues.

After failing to secure an outright majority in the recent elections for the first time in a decade, the Bharatiya Janata Party (BJP) relies on support from its allies to govern. The two coalition partners represent 9.5 per cent of the parliamentary seats held by Modi's National Democratic Alliance.

Both Bihar and Andhra Pradesh are pressing for more borrowing capacity in their respective states. Current fiscal rules restrict state borrowing to 3 per cent of the region's gross domestic product. Bihar has requested an additional 1 per cent of borrowing headroom without conditions, while Andhra Pradesh seeks an extra 0.5 per cent.

The government will release its budget for the fiscal year ending March 2025 on July 23, with Sitharaman committing to reducing the federal deficit to 5.1 per cent of GDP. Combining central and provincial budgets, the deficit was estimated at 8.8 per cent in the previous fiscal year, according to the International Monetary Fund. S&P Global Ratings recently suggested that reducing the combined deficit to below 7 per cent of GDP could lead to a rating upgrade.

States in India primarily derive their income from a share of centrally collected tax revenue and face borrowing restrictions. During Modi's first term, Bihar received a Rs 1.25 trillion financial package for farmer welfare and infrastructure improvements in roads, railways, and airports.

Both Bihar and Andhra Pradesh are under financial strain, limiting their capacity for development projects. Official data indicates that Bihar's spending on salaries, pensions, and interest payments constitutes over 40 per cent of its revenue income. Bihar remains one of India's poorest states, with an estimated per-capita income of about Rs 59,000 in the 2023 fiscal year, less than half the national average.