The fight between Karnataka CM and FM Nirmala Sitharaman explained

Siddaramaiah has been raising the issue of the Union denying the state funds since he became Karnataka CM in May 2023, but whether the Congress will take it up as an issue during the elections remains to be seen.
The fight between Karnataka CM and FM Nirmala Sitharaman explained
The fight between Karnataka CM and FM Nirmala Sitharaman explained
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Karnataka Chief Minister Siddaramaiah is continuing to put Union Finance Minister Nirmala Sitharaman on the spot, saying that the Union government owes the state thousands of crores of rupees in finance commission grants, funds earmarked in the Union budget, and drought relief.

At an event in Mysuru on Wednesday, March 27, Siddaramaiah reiterated that the Union government owes the state a special grant of Rs 5,495 crore, Rs 6,000 crore in state specific grants that the Finance Commission (FC) recommended, and Rs 18,000 crore towards drought relief. He also challenged the Finance Minister to a public debate, saying he would retire from politics if he is proved wrong and dared her to do the same if her claims were proved false.

Read:‘Union govt violating state’s fundamental rights’: Karnataka in SC over drought relief

Nirmala Sitharaman meanwhile maintained that there was no such recommendation from the FC and that the Union government had released all the funds it owed the state. “Every paisa due to Karnataka has been given, and given on time,” she said at an event in Bengaluru.

What did the Finance Commission actually say?

The 15th Finance Commission, in an unusual move, was asked to submit two reports: one for the fiscal year 2020-21 and a final report for 2021-22 to 2025-26.

In the first report, the FC did recommend a special grant of Rs 5,495 crore for Karnataka and two other states – Mizoram and Telangana. While many of that report’s recommendations were accepted, this one was not. While the Finance Ministry does have the authority to reject recommendations, it is not true that there was no such recommendation.

All states are asked to provide details of projects they wish to seek funding for. The 15th FC recommended state specific grants totalling Rs 49,599 crore. Karnataka had sought Rs 3,000 crore each for two projects in Bengaluru – rejuvenation of tanks and the Peripheral Ring Road Project.

However, in the Explanatory Note as to the action taken on the recommendations, the Finance Ministry said that “due consideration would be given” to those recommendations, “keeping in view the untied resources with the State Governments and fiscal commitments of the Central Government”. When previous CM Bommai and later Siddaramaiah wrote to the Union government for these grants, Sitharaman wrote back telling them to “mobilise internal resources”, according to documents released by Revenue Minister Krishna Byre Gowda.

Election issue?

At the Mysuru event, Siddaramaiah maintained his claim that the Union government had also not released Rs 5,300 crore set aside in the 2023-24 Union Budget for the Upper Bhadra Irrigation Project. “How many more days left for this year to end? … Did you release even one rupee of this money?” Siddaramaiah said, referring to the fiscal year. The BJP had committed “droha” (betrayal) against the people of Karnataka, Siddaramaiah charged. 

The CM and a handful of his cabinet colleagues and politicians from other parties in the country have been talking about the decreased revenue to states due to GST and shrinking divisible pool. But whether or not the Congress can turn this into an electoral issue in Karnataka remains to be seen. A major talking point for the party in the state is its five guarantees while the BJP appears to have centred its campaign around bringing Prime Minister Modi back for a third term.

Asked on what basis the Congress is seeking grants which the Union Finance Ministry had the power to reject, Revenue Minister Byre Gowda told The News Minute, “The Finance Minister has insisted in the Parliament that the government of India will honour every word of the Finance Commission’s recommendations in letter and spirit. Yet, specifically in the case of Karnataka, they have rejected the FC recommendation allocating Rs 5,495 crore. This is grave injustice. By denying (us the grants), the Union government is adding insult to injury.”

On whether the party will turn this into an electoral issue, Gowda said, “We will continue our efforts to raise issues of fiscal federalism, the BJP’s anti-federal stance, and continue to seek justice for the people of Karnataka irrespective of elections.”

‘Fiscal coercion’

Political observer and activist Shivasundar told TNM that whether the Congress will be able to successfully mobilise public opinion on the issue is a moot point. “Siddaramaiah is an expert in economic affairs and he is raising it. The states have faced issues with regard to revenues because of the implementation of GST and also because the national pie has reduced (due to the increase in cesses and surcharges). So the state government is justified in its demands,” he said.

Shivasundar said that while there has always been some amount of ‘fiscal discrimination’ between the Union government and opposition ruled states, and it was so under the UPA as well, there was a difference under the NDA. “What we are seeing now under the Modi government is fiscal coercion. It is not particular to Karnataka, but to several opposition ruled states including West Bengal and Kerala.” He cited the examples of the conditions that the Union government is placing on the states such as the use of the PM’s photos, on labelling, etc.

Shivasundar also said that the Congress raising the issue of diminishing fiscal federalism “smacks of hypocrisy”. “The Constitution was amended to exclude cess and surcharges (from the divisible pool of revenues) under the Vajpayee government in 2000. The Congress was in power for 10 years after that. Why did they not amend the Constitution? So yes, what Congress is doing is political propaganda, and as a political party they are justified in carrying out political propaganda.”

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