Citing a recent report by the Comptroller and Auditor General (CAG), the Congress party has accused the central government of "coercive federalism," alleging that it is undermining the independence of states and exacerbating their debt burdens. The CAG report reveals a concerning trend: the combined public debt of all 28 states in India has tripled in the last decade, soaring from ₹17.57 lakh crore in 2013-14 to ₹59.60 lakh crore in 2022-23.
According to the CAG's analysis, the total public debt of states, encompassing internal debt and loans from the central government, reached ₹59,60,428 crore by the end of fiscal year 2022-23. This figure represents 22.96% of the states' combined Gross State Domestic Product (GSDP), which is the total value of all goods and services produced within a state's boundaries. The report, described as the first of its kind decadal review of states' fiscal health, was presented by CAG K. Sanjay Murthy at the State Finance Secretaries Conference.
Congress leaders argue that the central government's policies, particularly concerning the Goods and Services Tax (GST) compensation cess and the imposition of "arbitrary" central levies, are stripping states of their fiscal autonomy. They claim that the states are facing a "double jeopardy" of increasing debt and dwindling revenues. Randeep Surjewala, a Congress general secretary, stated that India's federalism is under "unprecedented strain" and that the current situation is a deliberate attempt to "finish the States', hollow out their 'functionality', and 'unionise power' in the hands of the Centre".
The CAG report highlights significant disparities in debt levels among states. As of March 31, 2023, eight states had public debt liabilities exceeding 30% of their GSDP. Punjab recorded the highest debt-to-GSDP ratio at 40.35%, followed by Nagaland at 37.15% and West Bengal at 33.70%. Conversely, Odisha had the lowest ratio at 8.45%, with Maharashtra at 14.64% and Gujarat at 16.37%.
The report also noted that from 2014-15 to 2020-21, states' total debt stood between 128% and 191% of their revenue receipts. When measured against total non-debt receipts for the same period, the ratio ranged from 127% to 190%. On average, states' public debt has been about 150% of their revenue or non-debt receipts, and has generally fluctuated between 17% and 25% of GSDP.
The Congress party has been particularly critical of the central government's handling of cesses and surcharges, alleging that the center retains approximately ₹1,70,000 crore collected annually through these means without sharing it with the states. They argue that if these funds were merged with the GST, the states would receive their rightful share.
The rise in states' debt can be attributed to several factors, including increased borrowing needs, loans related to GST compensation, and fiscal pressures stemming from the COVID-19 pandemic. Some states are reportedly using borrowed funds to finance routine expenditures such as salaries, subsidies, and administrative costs, rather than investing in asset creation. The Congress warns that if the central government continues to follow "coercive federalism" principles, the states will be reduced to "glorified municipal committees".
