The financial relation between the Union and various State governments has been a matter of vigorous debate. In a recent development, the Government of Kerala has approached the Supreme Court for a resolution of the following question: how much can the State government borrow from the market to bridge the excess of its expenditures over receipts? The Union government says that the borrowing should be limited to 3% of the State’s income or Gross State Domestic Product (GSDP). Kerala contends that by curtailing its borrowing powers, the Centre is undermining the State’s ability to fulfil some of its basic financial commitments and violating the principle of federalism.
How States spend more
It is well known that in India the power to raise taxes rests largely with the Union government while a greater part of the overall government spending is done by the State governments. More importantly, when it comes to spending on sectors which affect people’s daily lives, the overwhelming responsibility lies on the shoulders of the State governments. On social services, which include health and education, the expenditure incurred in 2022-23 was ₹2,230 billion (1 billion = ₹100 crore) by the Union government while the combined expenditure by all State governments was ₹19,182 billion. The expenditures of all the States put together was bigger than the expenditure of the Union by 8.6 times in social services as a whole; 2.6 times in education; and by 3.8 times in health.
