Modi's coalition challenge: Nitish Kumar demands Rs 30,000 cr for Bihar in Union Budget

Prime Minister Narendra Modi's second-largest ally made the demand during a pre-budget meeting with Finance Minister Nirmala Sitharaman last month.

Bihar's government, led by Nitish Kumar of Janata Dal (United), conveyed the request but no decision has been made on the allocation for Bihar, according to the report.

PM Modi's largest coalition ally, N Chandrababu Naidu of the Telugu Desam Party, has already requested over $12 billion in aid for Andhra Pradesh over the next few years, reported Bloomberg News last week.

The combined financial demands from these two coalition partners exceed half of the government's annual food subsidy budget of 2.2 trillion rupees, highlighting the fiscal pressure on Modi to balance these demands with his goal of reducing government debt.

However, this year's budget offers some flexibility due to a record dividend from the central bank and increased tax revenues.

Bharatiya Janata Party (BJP)-led NDA formed the government with Chandrababu Naidu and Nitish Kumar's help after the party failed to secure an outright majority in the recent elections, relying on coalition allies to govern.

The two coalition partners hold 9.5% of the parliamentary seats in Modi's National Democratic Alliance. Both allies are also seeking permission for increased borrowing in their states.

Fiscal rules limit state borrowing to 3% of the region's GDP, but Bihar is requesting an additional 1% with no conditions, while Andhra Pradesh seeks an additional 0.5%.

Nitish Kumar has demanded funding for a 200 billion-rupees thermal power plant, repair work across over 20,000 km of roads, and provision in budget for building nine airports, four new metro lines and seven medical colleges in the state.

The government is set to release its budget for the fiscal year ending in March 2025 on July 23.

Finance Minister Nirmala Sitharaman has committed to reducing the federal deficit to 5.1% of GDP.

Last fiscal year, the combined central and provincial deficit was estimated at 8.8% by the International Monetary Fund.

S&P Global Ratings indicated that lowering the combined deficit to below 7% of GDP could lead to a credit rating upgrade, the report said.

Indian states primarily generate income from their share of the central government’s tax revenue and face borrowing restrictions.

During Modi’s first term, Bihar received a 1.25 trillion rupee financial package for farmer welfare and infrastructure improvements, including roads, railways, and airports.

Both Bihar and Andhra Pradesh are currently facing financial difficulties, limiting their capacity to fund development projects.

In Bihar, more than 40% of the state’s revenue is spent on salaries, pensions, and interest payments, according to official data.

Bihar remains one of the poorest states in India, with a per-capita income of approximately 59,000 rupees in the 2023 fiscal year, less than half the national average.