CAG Report: State Debt Nearly Tripled since 2013 — Congress Calls It Coercive Federalism

Digital News Guru Political Desk

“Coercive Federalism” and Rising State Debt: A Growing Flashpoint in Indian Fiscal Politics

India is witnessing a sharp intensification of debates around fiscal federalism, with the opposition party Congress accusing the central government of practising what it calls “coercive federalism.” The charge rests on a recent CAG (Comptroller and Auditor General of India) report which reveals that the public debt of states has nearly tripled over the past decade: from Rs 17.57 lakh crore in 2013-14 to Rs 59.60 lakh crore by 2022-23.

What Congress is Saying

Congress argues that the escalation in state debts isn’t simply a byproduct of state-level mismanagement or borrowing for development alone.

Rather, they allege that the central government has adopted policies that reduce states’ fiscal autonomy, increase their dependence on central transfers and cesses, and limit their ability to plan and spend independently. Key points they raise include:

• That revenues which should, in principle, accrue to states are being withheld or diverted.
• The use of various “cesses” or levies, especially those associated with GST compensation, which Congress says were meant to compensate states for loss of revenues under the GST regime. While the statutory compensation period for those losses ended in June 2022, Congress claims the Centre is continuing to use related cesses (or is retaining them) in ways that don’t benefit states fully.
• That these practices amount to centralisation of financial power, which Congress describes as “coercive federalism” — making states more like subordinates in fiscal affairs rather than partners in a federal pact.

In short, Congress is calling for a restoration of what it sees as cooperative federalism, with proper sharing of revenues, and more genuine financial independence for states.

The CAG Figures: What They Say

The CAG report acts as the factual backbone of the argument. Some of the striking figures:

• State debt has grown from Rs 17.57 lakh crore in 2013-14 to Rs 59.60 lakh crore in 2022-23.
• The growth is not uniform—some states are carrying much higher debt burdens than others, especially relative to their Gross State Domestic Product (GSDP).
• While debt per se isn’t always bad (states borrow for infrastructure, investment etc.), when growth of debt outpaces revenue growth, or when states find themselves overly dependent on central transfers, it can limit their ability to plan, invest, or respond to local needs. The concern is especially acute in those states that have debt exceeding certain thresholds of their GSDP.

Why This Matters — Implications & Risks

1. Fiscal Health and Debt Sustainability
   When states accumulate debt rapidly, servicing costs (interest payouts etc.) can consume a large part of the budget, leaving less for development, social welfare, infrastructure or even core services. This raises the risk of fiscal stress or even the inability to meet financial obligations under certain conditions (especially in states with fragile revenue bases).
2. Autonomy & Federal Balance
   The Indian Constitution envisages a federal structure, with states having significant powers over many domains (health, education, agriculture, local government etc.). However, many of those functions require adequate and predictable financial resources. If the Centre controls the purse strings (via cesses, conditions on central schemes, or withholding of what states view as their share), that autonomy is under pressure. The term “coercive federalism” captures this tension.
3. Political Dimension
   The issue becomes inherently political. Opposition-ruled states or states governed by non-aligned parties are more likely to view central policies as discriminatory or unfair in revenue sharing or scheme design. Debt levels become a matter of bargaining and political rhetoric. How these allegations are addressed (or not) can affect inter-governmental relationships and electoral dynamics.
4. Economic & Social Consequences
   States with high debt burdens may cut back important spending on health, education, and welfare. They may also defer capital expenditure (roads, irrigation, power). That in turn slows down growth, employment, and delivery of essential services. This has knock-on effects on people’s lives.

Challenges in Responding

While Congress’s allegations have traction based on the CAG data, there are counter-arguments and complexities:

• Why states borrowed: Some part of the state debt rise may be due to funding of large infrastructure projects, urban development, power sector expansions, or to meet revenue shortfalls during slower growth periods. Not all borrowing is negative.
• Interest Rates / Fiscal Conditions: Central borrowing costs, fiscal pressures (such as rising subsidies, social spending, or contingent liabilities), inflation, and macro-economic shocks (like post-pandemic effects) affect both states and the Centre.
• Role of central schemes: Many state governments rely heavily on centrally sponsored schemes and central grants. Sometimes these have stringent conditions, or delays/discrepancies in transfers. Strengthening this system is complex, because uniform national standards and economies of scale are often involved.
• Transparency and Uniform Metrics: While the CAG report gives aggregate data, individual state variances need to be examined more deeply. For example, what is the debt as % of GSDP? What portion is for capital investment vs recurring expenditure? What are interest obligations? Etc.

You May Also Read: Homebound Selected as India’s Official Entry for Oscars 2026 — What Makes It a Strong Contender