The great BJP chokehold on state finances

The process of procuring wheat in mandis across the country has begun. However, reports from — the largest wheat-producing state — indicate that the infrastructure remains inadequate, storage facilities are poor and roads leading to the mandis are bad.

Previously, such preparations were completed months in advance, which the Punjab State Agricultural Marketing Board (Mandi Board) was unable to do for lack of funds this year. The state government was in no position to help either. Already burdened with debt, the board found no financial institution willing to give a loan.

Punjab is just one example; many other states are facing similar fiscal challenges. One needs to understand that this comes at a time when record GST collections are being reported. So why are several states struggling financially?

Recently, chief minister revealed that his government had to borrow Rs 4,000 crore from the every month just to pay employees’ salaries. He even urged state employees to temporarily hold off on demanding their DA (dearness allowance).

Similarly, the government is struggling to pay salaries to its 2.15 lakh employees and pensions to 90,000 retirees each month.

States like , Karnataka, Tamil Nadu and West Bengal are also grappling with financial difficulties, though the crises in these states are not yet as severe.

Notably, none of these states are governed by the BJP or NDA allies.

In contrast, such financial distress is rarely reported from BJP- or NDA-ruled states.

Ahead of every assembly election, the BJP propagates the “double engine government” slogan, asserting that having a BJP-led government at both the state and central levels accelerates development.

This implies that states governed by the BJP receive generous support from the Centre.

Economist Arun Kumar argues that this approach — suggesting that a state will receive more funds only if there is a BJP government — not only contradicts the basic principles of the Constitution but also undermines federalism.

The financial situation of the states can be better understood by examining repeated complaints of discrimination from leaders of non-BJP-ruled states. This is not a mere political allegation — there are concrete examples.

, for instance, has not received funds from the Centre for three-and-a-half years. More recently, Tamil Nadu faced a similar situation, with MNREGA funds not being released in the last five months.

’s leaders have protested both in Parliament and on the streets, yet the central government remains unwilling to release the funds. Additionally, due to Tamil Nadu’s opposition to the in the , the Centre has withheld Rs 2,152 crore under the .

Chief minister has called this action “nothing but open blackmail”.

Earlier, the parliamentary standing committee on education urged the ministry of education to prioritise the release of funds withheld from West Bengal, Kerala and Tamil Nadu under the . The total amount owed exceeds Rs 4,000 crore.

Both and fall under the jurisdiction of state governments, which bear 80 per cent of the expenditure in these sectors.

The central government not only limits support for education but also reduces aid to numerous states during disasters.

In 2024, experienced a severe calamity caused by flash floods, besides the huge loss of lives and properties, isolating a significant portion of the state from the rest of India for days. In response, the state government formulated a Rs 9,042 crore relief package.

Even though finance minister acknowledged the disaster in her budget speech, the central government provided no additional assistance despite repeated appeals.

The Himachal Pradesh government sought to have the calamity classified as a , which would have shifted the burden of relief efforts on to the central government, but this request was denied. (The central government holds significant discretion in determining which events qualify as national disasters.)

Likewise, Tamil Nadu faced two disasters in 2023 and requested Rs 37,906 crore for relief and rebuilding efforts, yet received only Rs 276 crore. In contrast, when , under a BJP-led government, encountered a disaster in 2019, it was allocated Rs 1,200 crore from the .

The importance of allocations made by the Centre to the states can be understood through two key figures. In 2018–19, the central government controlled 62.7 per cent of the country’s total revenue resources. Meanwhile, the states accounted for 62.4 per cent of the total public expenditure.

In 2018–19, the Centre controlled 63% of the country’s revenue resources while the states accounted for 62.4% of public expenditure

This imbalance means that while the Centre collects more revenue, the states bear the larger share of spending. As a result, state governments are heavily dependent on funds allocated by the Centre, which also creates opportunities for political discrimination in fund distribution.

The introduction of GST has further constrained state revenues, leaving them with only two major sources of income — sales tax on petroleum products and . However, these account for just a small fraction of their total expenditure.

Beyond political biases in fund distribution, institutional changes in recent years have also reduced the financial support states receive from the Centre. Previously, states received funds through two channels — the , which determined allocations based on a fixed formula (vertical allocation); and the , which provided funds for implementing schemes under five-year plans.

With the dissolution of the Planning Commission, this second channel was eliminated. The Planning Commission’s process was relatively democratic, as its policy decisions were made within the National Development Council, where all chief ministers had a say.

Following the Planning Commission’s dissolution, the Finance Commission’s allocation was increased from 34 per cent to 41 per cent. However, Professor Kumar argues that the actual allocation remains only around 34–35 per cent.

This discrepancy arises due to the growing use of cess and surcharges, which are collected by the Centre but not included in the divisible pool of funds shared with the states.

Previously, corporate tax was not included in the allocation to states. A constitutional amendment made during ’s tenure in 2000 formalised the exclusion of cess and surcharge from the divisible pool. Since 2015–16, under the government, cess and surcharge collections have steadily increased, further reducing the financial share of states.

These pressures affect not just Opposition-ruled states but also BJP-led states. Recently, a cabinet minister stated that the state government had to dip into the employees’ provident fund and gratuity reserves to pay salaries. Though the statement was later retracted, it underscored the financial distress states are facing.

Still, while clearly all states struggle under the current Centre–state fiscal arrangement, non-BJP-ruled states appear to bear the brunt of the strain.