The Congress party has strongly criticized the central government, alleging that the public debt of states in India has tripled in the last decade and that states are victims of "coercive federalism". Citing a recent report by the Comptroller and Auditor General of India (CAG), the Congress asserts that the financial health of states is being undermined by the policies of the central government.

According to the CAG report, the combined public debt of all 28 states has risen from ₹17.57 lakh crore in 2013-14 to ₹59.60 lakh crore in 2022-23. This represents an increase from 16.66% of the states' combined Gross State Domestic Product (GSDP) to 22.96%. The states' total debt in 2022-23 amounted to 22.17% of India's Gross Domestic Product (GDP).

Congress leaders argue that this increase in debt is a result of the central government's "coercive federalism," which they claim erodes the independence of states and reduces them to municipalities. They accuse the central government of not sharing revenues with the states as desired and of engaging in "cess politics". AICC spokesman Randeep Surjewala stated that states are being stripped of their fiscal independence through the central government's handling of the Goods and Services Tax (GST) Compensation Cess and arbitrary central levies.

Surjewala highlighted that ₹1,70,000 crore is collected annually from cesses and surcharges, but the central government retains it without sharing with the states. He also pointed out that the GST Compensation Cess, which was created to compensate states for GST losses, ended in June 2022, and the same cess is now used to repay central loans. While there is no constitutional mandate to continue the cess beyond October 2025, the central government allegedly intends to retain it exclusively. The Congress demands that the Centre share the cess with the states for the next ten years.

The Congress party argues that this situation results in a "double jeopardy" for states, characterized by mounting debt and shrinking revenues. They claim that the central government's actions undermine cooperative federalism, decentralization of power, and the functionality of states, effectively turning them into "glorified municipal committees". They also warn that GST collections are projected to decrease, which will further reduce the states' revenues.

The CAG report reveals that eight states already have debt levels exceeding 30% of their GSDP. Punjab recorded the highest debt-to-GSDP ratio of 40.35%, followed by Nagaland (37.15%) and West Bengal (33.70%). Odisha (8.45%), Maharashtra (14.64%), and Gujarat (16.37%) had the lowest ratios.

The Congress party insists that the central government should demonstrate empathy towards the states, especially as they grapple with the COVID-19 pandemic and its economic consequences. They suggest that the central government should provide relief to the states through the Consolidated Fund of India. The party views the current situation as a breach of the social contract between the central and state governments, who are equal representatives of the citizens of India.