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Informist, Thursday, Jan. 30, 2025

 

By Priyasmita Dutta

 

NEW DELHI – Within a week of Finance Minister Nirmala Sitharaman presenting the Union Budget for the financial year 2025-26 (Apr-Mar), states will begin unveiling their budgets, with Kerala leading the way. Kerala's Finance Minister K.N. Balagopal is set to present the state's Budget for FY26 on Feb. 7. Four other states have announced their budget dates: West Bengal on Feb. 12, Rajasthan on Feb. 19, Gujarat on Feb. 20, and Karnataka on Mar. 14.

 

A key focus of Kerala's Budget will be whether the state adhered to its projected fiscal deficit of 3.40% of gross state domestic product, or GSDP, for FY25, and what the target will be for the next fiscal year. This is especially significant given the state's vocal opposition to the Centre's imposition of borrowing limits on states. Kerala had previously petitioned the Supreme Court to raise its borrowing ceiling from the current 3.5% of gross state domestic product, which includes 0.5% tied to power sector reforms.

 

In his previous Budget speech, Balagopal had criticised the Centre for "neglecting" Kerala. He had pegged Kerala's nominal GSDP growth at 11.68% in FY25. He had also allocated INR 644.31 billion to various development initiatives. A key proposal in his fourth Budget speech centred on overhauling the state's pension system for government employees. Kerala plans to replace the National Pension System with an "assured pension system", to be implemented after evaluating similar schemes in other states. This plan, if announced, would come with a higher fiscal burden.

 

West Bengal's Budget for FY26, to be presented by Finance Minister Chandrima Bhattacharya, will need to be assessed in the context of the state's fiscal deficit for FY25. The deficit projection stands at 3.63% of GSDP, already 23 basis points above the prescribed limit. "We have consistently focused on sound economic planning and financial discipline and have steadily moved on a path of positive growth," Bhattacharya had said in her speech. The Budget outlined total expenditure of INR 3.36 trillion for FY25, with increased allocations for welfare programmes like Lakshmir Bhandar, a flagship scheme launched by West Bengal in February 2021 to provide financial assistance to women from economically weaker sections.

 

Though cash handout schemes can be seen as fiscally risky, the state has also raised its capital spending to support economic growth. For FY25, capital spending has been increased by 17% to INR 358.66 billion, compared with the revised estimate for FY24.

 

A high fiscal deficit problem is also at the heart of Rajasthan's Budget. Deputy Chief Minister and Finance Minister Diya Kumari has projected the state's fiscal deficit for FY25 at 3.93%, 43 basis points higher than the limit of 3.50%. The state has a huge capital spending outlay, to the tune of INR 442.16 billion, in FY25, which is 66% higher on year. Rajasthan also has a sharply higher GSDP growth projection for FY25 at 17%. The key issue will be how the Kumari-led finance department balances public spending to stimulate growth while maintaining fiscal responsibility. It will also be interesting to see if the state introduces new welfare initiatives, particularly aimed at women.

 

For a change, Gujarat's Budget showcases a low fiscal deficit, projected at 1.9% of its GSDP for FY25. Finance Minister Kanubhai Desai in his previous Budget speech had highlighted Gujarat's impressive growth of 14.9% over the past two decades, contributing 8.2% to the national GDP. The state now aims to constitute 10% of national GDP and expand the size of its economy to $3.5 trillion by 2047. Despite its ambitious goals, Gujarat has managed to run significant welfare programmes such as the Namo Laxmi, Namo Saraswati, and Namo Shri schemes, without compromising fiscal discipline.

 

The Karnataka government also has a high allocation for welfare programmes, to the tune of INR 1.20 trillion in FY25. Like Gujarat, Karnataka's Chief Minister Siddaramaiah has kept the fiscal deficit under check at 2.95% for FY25. "As the nation is adversely affected by steep price rise, unemployment, and huge income disparities, it is the duty of the state to increase budgetary allocation towards welfare schemes which directly benefit the poor," he had said in his Budget speech last year. The Budget had also pegged capital spending at INR 529.03 billion for FY25, 3.3% higher than INR 512.31 billion in FY24. The state had allocated INR 573.48 billion towards capital expenditure in FY23.

 

The state budgets are crucial as the country's fiscal management, particularly from a rating standpoint, depends on how effectively the government handles its resources and spending. The government has been advocating that India, currently rated at Baa3 by Moody's, the lowest tier of investment grade, deserves a higher rating because of its economic resilience and stable fundamentals. However, the rating agency, in its Asia-Pacific 2025 Outlook, said India needs to improve drastically on two key metrics--the size of its debt burden, and the affordability of its debt--for a sovereign rating upgrade.  End

 

Edited by Subhojit Sarkar

 

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