Modi’s top coalition ally seeks more than 1 trillion rupees in aid
PM Modi has agreed in principle to providing the financial support
A KEY ally in Prime Minister Narendra Modi’s coalition government is demanding financial support of more than1 trillion rupees (S$16.16 billion) for the state he runs in southern India, according to people familiar with the matter, adding pressure on the federal budget.
N Chandrababu Naidu, head of the Telugu Desam Party (TDP) and also chief minister of Andhra Pradesh state, met Modi on Thursday (Jul 4) to request an aid package to build the capital city in the state and fund other projects. Naidu has requested a substantial portion of the support to be paid from this year’s national budget, the people said, asking not to be identified because they’re not authorised to speak publicly about the matter.
Modi’s Bharatiya Janata Party failed to win an outright majority for the first time in a decade in recently held national elections, and is reliant on Naidu’s TDP and another coalition party – Janata Dal (United) – to run the government. Local media reported that JDU, which is led by Nitish Kumar, is also seeking a special financial aid package for the eastern state of Bihar, which he governs. Modi’s government is expected to announce its national budget later in July.
Modi has agreed in principle to providing the financial support to Naidu, the people said. The TDP leader met Finance Minister Nirmala Sitharaman on Friday (Jul 5) to discuss the details. The government hasn’t yet agreed on the exact amount of the support, the people said.
The financial package of more than 1 trillion rupees sought by Andhra Pradesh includes the following, some of the people said:
- Raising the fiscal deficit ceiling of 3 per cent of state gross domestic product by allowing an additional 0.5 per cent of borrowing for the financial year through March 2025. That’s equivalent to about 70 billion rupees
- 500 billion rupees to build the new capital of Amaravati, of which 150 billion rupees to be allocated in the current fiscal year
- 120 billion rupees this fiscal year for the Polavaram irrigation project, and a commitment for more funds going forward
- 150 billion rupees over the next five years to clear overdue debt
- 100 billion rupees for infrastructure development under the federal government’s 50-year loan scheme
The funding demands will add pressure on the national budget, which Modi’s government has been trying to curb in order to bring down debt. Sitharaman, who was reappointed to her post last month, had pledged to narrow the budget deficit to 5.1 per cent of GDP in the fiscal year through March 2025. Credit rating companies like S&P Global Ratings are closely watching the fiscal outlook to determine whether to upgrade India’s debt.
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“Any kind of special grant given to states, owing to political compulsions, would reduce the flexibility for the federal government to spend in other areas,” Madhavi Arora, an economist at Emkay Global Financial Services, said by phone. “It constrains their overall fiscal math for budget balancing but we will have to see how the aid flows.”
Indian bonds were steady on Friday, with yields on the 10-year note edging lower by as much as 1 basis point to 6.99 per cent.
Naidu has been pushing to create a new capital in Andhra Pradesh after the state was split from Telangana in 2014, with the then-state capital of Hyderabad going to Telangana. The project to create Amaravati as the capital stalled after Naidu lost the 2019 state elections.
Andhra Pradesh’s government is facing severe financial strain, according to the TDP, with expenses like salaries, pensions and debt servicing exceeding the state’s revenue. The state’s public debt was 33 per cent of its GDP at the end of the 2024 fiscal year, up from 31 per cent four years ago, official data show.
“There is no other way to face such challenges except by way of financial hand-holding by the central government,” the TDP said in a statement Thursday. BLOOMBERG
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