Union Budget 2024-25 Further Strengthens Grip Keeping States Fund Starved

By Dr. Gyan Pathak

India’s Budget 2024-25 once again strengthens the Centre’s grip over the states by keeping them fund starved. They now seem to be on complete mercy of the PM Narendra Modi led government for funds. Despite the 15th Finance Commission’s recommendation for 41 per cent of revenue share from the central taxes collected from the states, the current budget would give only 32.5 per cent, even less than 32.6 per cent in FY 2023-24 provisional estimate.

It is only to hoodwink the unsuspecting people of the country, the government is much louder on the absolute term which will be Rs 12.5 trillion in FY 2024-25, a little more than the provisional amount of Rs 11.3 trillion in FY 2023-24. It would be also a small increase from Rs 12.2 trillion announced in the Interim Budget 2024-25.

Centre’s evil intentions do not stop here. It has always been trying to cheat on states by levying several kinds of cess and surcharge, but does not share the amount collected with the states. Thus, the actual share to states from the all collected revenue from the states including tax, cess, and surcharge is much lower than the 32.5 per cent, while their rightful share should be 41 per cent as per the final report of the 15th finance Commission that came out after the two Union Territories were carved out of Jammu and Kashmir while the state was abolished in 2019.

According to the Budget 2024-25, the Centre would also transfer other funds to the states through various centrally sponsored schemes. However, the most debatable issue has emerged because of brazen financial support to two states – Bihar and Andhra Pradesh – among the 36 states and UTs of the country. These two states are ruled by NDA that rules the country as a coalition government, whose survival much depends on its ally JD(U) in Bihar, and TDP in Andhra Pradesh. Bihar gets an infra push worth Rs 47,400 crore. The total financial assistance promised from Centre to Bihar would be Rs 58,900 crore. Andhra Pradesh gets Rs 15,000 crore for its new capital.

Almost all the opposition ruled states across the country have criticized Modi government’s carrot and stick policy. All non-BJP political parties in the country are subjected to this policy they say. Someone not ready to follow the diktat of Modi government would be subjected to punitive actions against them and whoever supports would be rewarded with funds.

The four states of the South out of five – Karnataka, Kerala, Tamil Nadu, and Telangana – have criticized the Centre’s approach. West Bengal, Jharkhand, and Delhi from the north have also voiced their anger against ignoring their needs by the Centre. All these are opposition ruled states, which have been suffering at the hands of the Centre, are being systematically fund starved, they have alleged.

Nevertheless, as per the Expenditure Profile of the Budget, the total transfer to States and Union Territories with legislative assemblies (excluding State’s share of Net Proceeds of Union Taxes and Duties) has been estimated to Rs 11.01 lakh crore in 2024-25 as against Rs 9.94 lakh crore as per the revised estimate for 2023-24. Since the budget allocation for transfer to states was Rs 10.51 lakh crore for 2023-24, it is obvious that even the budgeted amount was not transferred. These transfers are to be made in four heads – Some Important Items of Transfer; Finance Commission Grants; Transfer to states other than the preceding two heads, and Transfer to Delhi, Puducherry and Jammu & Kashmir.

It is surprising that for the current year, no fund was to be transferred under Back to Back Loans to States in lieu of GST Compensation Shortfall, and under Special Central Assistance to Tribal Area under the Demand – Ministry of Tribal Affairs.

Against the budgetary provision of Rs 10,928 crore in 2023-24, actual transfer was only Rs 7000 crore to states as assistance to states from National Disaster Relief Fund. It was indeed a poor performance while several states were in need of the fund, but regrettably did not get. Now, for 2024-25, the budget has announced to transfer Rs 11,475 crore, but no one can be sure about its actual disbursal to the strife torn state going under natural and man-made disasters. State’s experience is that the Centre announce big amount to play to the gallery, but it was not intended to be actually disbursed.

Grants for externally aided projects and loans have been substantially increased, to Rs 8000 and Rs 33900 crore. However, Schemes of North East Council gets only a small increase from Rs 28.26 crore to Rs 29.33 crore. Special assistance for capital expenditure to states has been increased from budgeted Rs 1.3 lakh crore for 2023-24 to Rs 1.5 lakh crore for 2024-25. Since actual transfer to states last year was only Rs 1.05 lakh crore, it is not likely that the budgeted amount would be transferred to the states this year.

As for Finance Commission Grants, Centre’s performance has been poor. Against the actual transfer of 1.72 lakh crore in 2022-23, budget allocation for 2023-24 was less at Rs 1.65 lakh crore, but actual disbursal was only Rs 1.40 lakh crore. It has been further reduced for the year 2024-25 to Rs 1.32 lakh crore.

Transfer to states other than the previous two – Important Item of Transfer and Finance Commission Grants, is estimate at Rs 6.86 lakh crore in 2024-25 as against the provision of Rs 6.51 lakh crore in 2023-24 which has been revised downward to Rs6.36 lakh crore. Delhi, Puducherry and Jammu & Kashmir will be given Rs 57,797 crore as against RE Rs 56,757 crore last year.

As per the Expenditure Budget 2024-25, Demand for Grants, net state transfer has been projected at Rs 3.22 lakh crore as against RE Rs 2.73 lakh crore in 2023-24. It should be noted that the budget 2023-24 had a provision for much more at Rs 3.24 lakh crore. All these show that state have not been getting enough, and getting less than what is promised. Moreover, states are not even getting their rightful share, which make them fund starved. Centre keeps more money with it only to establish firm political control over the states, particularly the opposition ruled states.

There are other issues that need urgent attention which include the disincentives for better performing states while less performing states with larger populations are getting more Central funds. Performance must not be punished, and needy must get help. However, it is easier said than done, since it has emerged as a very complex issue in India’s Federal Structure and Centre’s partisan politics, such as reflected in Union Budget 2024-25. (IPA Service)