Many state governments on Saturday demanded that the Centre increase the untied component of interest-free capex loans, merge cess and surcharge with the divisible pool of central taxes and allocate funds to each state under centrally-sponsored schemes in a timely manner.

In the pre-budget meeting of state finance ministers with Union finance minister Nirmala Sitharaman in Delhi, West Bengal and Tamil Nadu pointed out that the cesses and surcharges being levied by the Centre have adversely affected the transfer of resources to the states.

States including Odisha, Chhattisgarh and West Bengal demanded that the untied 50-year interest-free capex loan amount should be enhanced from Rs 55,000 crore earmarked for FY25 in the interim budget to Rs 1 trillion.

Tamil Nadu finance minister Thangam Thennarasu alleged that the Centre is continuing to divert its revenue collections away from the divisible pool of taxes. Cesses and surcharges went up from 10.4% of the Centre’s gross tax revenue in 2011-12 to 20.28% in 2022-23, he noted. “Cesses and surcharge should be part of the divisible tax pool,” West Bengal finance minister Chandrima Bhattacharya told FE.

“This (higher untied capex loans) would expedite better utilisation of funds and timely achievement of project milestones,” Odisha deputy chief minister KV Singhdeo said in his submission.

Kerala has demanded a special package of Rs 24,000 crore over two years to tide over ‘liquidity stress’ for the state. Kerala finance minister KN Balagopal also sought a special capital investment of Rs 5,000 crore for Vizhinjam port development and another Rs 5,000 crore for financing infrastructure projects such as Calicut-Wayanad tunnel road and early clearance of semi-high speed railway line. “With the electoral outcome, we expect the central government to have a more federal approach to considering states’ concerns,” Balagopal said.

Chhattisgarh finance minister OP Choudhary sought central assistance in building the capital of the state Nava Raipur Atal Nagar. Odisha deputy CM Singhdeo said an advance indication about the annual allocation for each state and sharing pattern at the time of budget formulation would enable the states to prepare their budgets on a realistic basis. He also sought an additional 5 lakh housing under Pradhan Mantri Awas Yojana (PMAY) for Odisha in 2024-25.

Bhattacharya also demanded that the Centre release its share of funds for PMAY and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). “We have 11.36 lakh houses sanctioned under PMAY by the ministry concerned, but the money has not been given by the Centre. Similarly, dues of 59 lakh persons for 100 days work under MGNREGS are also pending,” Bhattacharya said.

Thennarasu urged the Centre to exclude loans taken by state governments to cover losses of power distribution companies (discoms) from the calculation of fiscal deficits and borrowing limits set for the states. The states were given extra borrowing space of 0.5% of GSDP for four years ending FY25 for implementation of specific reforms in the power sector. States borrowing limits are set by the Centre based on the recommendation of the Finance Commission.

Untied capex loans were earmarked at Rs 1 trillion in FY24, while reform/project-tied loans were pegged at Rs 30,000 crore. In FY25, the government provided Rs 1.3 trillion for capex loans to states but earmarked Rs 75,000 crore as tied to reforms to be undertaken by states.