NEW DELHI (Reuters) – For a politician not known to easily make concessions, Indian Prime Minister Narendra Modi's budget on Tuesday was a successful early test of his ability to run a fickle coalition after a shock poll result last month, but it came at a cost.
Modi has been forced to rely on allies to run a government for the first time in his career, having earlier delivered thumping majorities for his Hindu nationalist Bharatiya Janata Party (BJP) nationally and in his native Gujarat state.
Boosted by a record dividend from the central bank, Modi allocated more than $5 billion for infrastructure and other projects in the home states of two key allies, cheering them but prompting the opposition to call it an attempt to "bribe" the coalition and undermine other regions.
Andhra Pradesh's Telugu Desam Party (TDP), now an ally but which in 2018 pulled out of the Modi government because the then budget did not mention any special assistance for the state, said it was "extremely delighted and grateful" to Modi for the latest budget and that it was a "red letter day" for the state.
Another ally, Janata Dal (United) of the poor eastern state of Bihar which was with the opposition as late as January, said there were so many announcements for the state that "some are calling it a Bihari budget".
"We are happy with the budget," Janata Dal General Secretary Kishan Chand Tyagi told Reuters. "This will help Bihar become self-reliant, poverty-free, develop and plug migration."
He said what party boss Nitish Kumar had expected "has been fulfilled to a great extent".
Modi had prevailed over the allies in his cabinet appointments, with the BJP retaining all key portfolios, but the partners have been more demanding in other areas.
Both have sought more than $10 billion more over the next two years, according to documents seen by Reuters and party sources.
POLITICAL COMMITMENT
Analysts said the additional funds for the two states would not be a problem – the budget plans overall spending of $576bn this fiscal year – but the concern was that other states would also raise similar demands, leading to diversion of funds from other areas.
"The downside is here you are allocating not because of need – which is usually measured by some objective indicator – but because of political commitment," said Pronab Sen, formerly a government adviser and India's chief statistician.
"The question is how do you evaluate it? How do you find equality among states?"
Opposition-run states like West Bengal, Punjab and Kerala have already said the budget overlooked them. Kerala said it had asked for a "special package" of 240bn rupees ($2.87bn) from the budget but that did not happen.
"This budget is mainly for the (ruling) coalition – its strengthening and longevity," Kerala Finance Minister KN Balagopal told reporters. "The question of federalism is very important. Every state should get their due share."
Lawmaker Abhishek Banerjee, a senior figure of All India Trinamool Congress that rules West Bengal, said on social media:
"Instead of tackling urgent issues like unemployment, rising prices and growing inflation, the BJP has crafted a budget to bribe its coalition partners and buy time before the government IMPLODES!"
Finance Minister Nirmala Sitharaman told reporters after the budget that the "intention is not to leave out any state".
"No state is going to be left out just because I have not named each and every state in my budget speech," she said, having mentioned Bihar and Andhra about five times each.
The budget also unveiled spending of billions of dollars to create new jobs and address rural distress - two key issues in the recent elections - but the rupee slipped to record lows as raising tax rates for capital gains from equity investments and on equity derivative trades hurt market sentiment.