Budget under a Federal System
Finance Minister Nirmala Sitharaman unveiled her ninth budget, structured around three core duties: prioritising productivity enhancement, fulfilling aspirations, and reiterating the PM’s slogan ‘Sabka Saath Sabka Vikas’. When considering these goals within the framework of the Indian Federation, it’s important to examine how the states’ aspirations have been acknowledged and what steps have been taken to boost productivity in lagging regions.
The Constitution of India establishes the Interstate Council under Article 263, serving as a vital platform for dialogue, cooperation, and dispute resolution between the Centre and States, thereby strengthening India’s federal system. However, budget speeches over the years suggest that states’ aspirations are often overlooked, and even when acknowledged, little is done to implement them.
Recently, state governments and opposition parties voiced concerns about the Centre’s indifference to their aspirations, along with growing calls for greater transfers of funds to the states. The finance minister’s current budget efforts focus on boosting revenue from various sources, with total revenue expected to be around Rs 35.3 lakh crore for this fiscal year. Out of this, Rs 28.7 lakh crore is derived from state-level taxes, including centrally administered taxes. Last year’s revised revenue estimate was Rs 33 lakh crore, an increase of about Rs 2 lakh crore, but estimated expenditure rose by approximately Rs 4 lakh crore, reflecting questionable fiscal management.
Karnataka’s GST contribution to the central pool ranks second among states, and the state sought funds for infrastructure development, which could have been met through allocations. States have requested significant funds from tax collections, but how the central government plans to implement these transfers remains unclear. Tamil Nadu Chief Minister MK Stalin proposed transferring 50% of the state’s tax revenue, though this could affect central schemes and infrastructure projects, including defence.
Citizens should respect the Union Budget, and the finance minister’s announcements should be followed carefully. Several projects, such as Bengaluru’s infrastructure and the Upper Krishna and Bhadra irrigation projects, were announced or approved but lack funding. The government should prioritise fulfilling these commitments, especially since Karnataka is the largest contributor to the Centre. Infrastructure development remains a key focus for the central government, and it was expected that the FM would allocate funds for Karnataka’s infrastructure projects.
Agriculture is a key driver of the country’s growth and development. The finance minister announced the Price Deficiency Payment Scheme in the budget, targeting 48 crops, including maize, soybean, mango, chilli, onion, tomato, turmeric and ginger. She emphasised the importance of diversifying farm produce, increasing productivity, raising farmers’ incomes and opening new opportunities. Priority will be given to promoting high-value crops such as coconut, sandalwood, cocoa and cashew, particularly in coastal areas, to generate employment. These initiatives will directly benefit farmers cultivating these crops. Additionally, the budget allocates special teams for coconut and cocoa.
Karnataka’s government requested funds to support a price and income stabilisation scheme and sought increased funding for the National Social Assistance Programme. The state has faced an estimated loss of Rs 9,000 crore due to GST slab revisions and is seeking compensation. It also urges the quick clearance of pending payments, which have delayed several development projects. Furthermore, Karnataka could have received a larger share of excise duty on tobacco, given its status as a major tobacco-producing and marketing state.
In the opening of her budget speech, the finance minister committed to making this a Yuva Shakti Budget. Karnataka, home to around 17 million youth aged 15 to 29, is a vital centre for MSME and IT sectors. This necessitates skilled manpower, which can be sourced from the state’s youth. The port registers 7.38 lakh MSMEs, including 7 lakh micro-enterprises, around 27 lakh small enterprises, and 2,000 medium enterprises. The Finance Ministry plans to support MSMEs across six key areas: i) Expanding manufacturing in seven strategic and frontier sectors; ii) Revitalising legacy industrial sectors; iii) Creating “Champion MSMEs”; iv) Boosting infrastructure; v) Ensuring energy security and stability; and vi) Developing City Economic Regions. Properly implementing these promises, unlike previous budgets, will undoubtedly benefit Karnataka.
The finance minister has effectively managed budget preparation and kept the process engaging. However, the current central government has largely ignored the crucial institution known as the Interstate Council, established under Article 263 of the Indian Constitution. It would be very helpful if the Prime Minister’s finance minister utilised this article to discuss the states’ aspirations before finalising development programmes. This approach could significantly advance the goal of cooperative federalism in the country.