Modi’s top coalition ally seeks more than $12 billion in aid

A key ally in Prime Minister Narendra Modi's coalition government is demanding financial support of more than 1 trillion rupees ($12 billion) for the state he runs in southern India, according to people familiar with the matter, adding pressure on the federal budget.

N Chandrababu Naidu, head of the Telugu Desam Party and also chief minister of Andhra Pradesh state, met Modi Thursday to request an aid package to build the capital city in the state and fund other projects. Naidu has requested a substantial portion of the support to be paid from this year's national budget, the people said, asking not to be identified because they're not authorized to speak publicly about the matter.

Modi's Bharatiya Janata Party failed to win an outright majority for the first time in a decade in recently held national elections, and is reliant on Naidu's TDP and another coalition party — Janata Dal (United) — to run the government. Local media reported that JDU, which is led by Nitish Kumar, is also seeking a special financial aid package for the eastern state of Bihar, which he governs. Modi's government is expected to announce its national budget later in July.

Modi has agreed in principle to providing the financial support to Naidu, the people said. The TDP leader met Finance Minister Nirmala Sitharaman on Friday to discuss the details. The government hasn't yet agreed on the exact amount of the support, the people said.

The financial package of more than 1 trillion rupees sought by Andhra Pradesh includes the following, some of the people said:

• Raising the fiscal deficit ceiling of 3% of state gross domestic product by allowing an additional 0.5% of borrowing for the financial year through March 2025. That's equivalent to about 70 billion rupees
• 500 billion rupees to build the new capital of Amaravati, of which 150 billion rupees to be allocated in the current fiscal year
• 120 billion rupees this fiscal year for the Polavaram irrigation project, and a commitment for more funds going forward
• 150 billion rupees over the next five years to clear overdue debt
• 100 billion rupees for infrastructure development under the federal government's 50-year loan scheme

The funding demands will add pressure on the national budget, which Modi's government has been trying to curb in order to bring down debt. Sitharaman, who was reappointed to her post last month, had pledged to narrow the budget deficit to 5.1% of GDP in the fiscal year through March 2025. Credit rating companies like S&P Global Ratings are closely watching the fiscal outlook to determine whether to upgrade India's debt.

Naidu has been pushing to create a new capital in Andhra Pradesh after the state was split from Telangana in 2014, with the then-state capital of Hyderabad going to Telangana. The project to create Amaravati as the capital stalled after Naidu lost the 2019 state elections.

Andhra Pradesh's government is facing severe financial strain, according to the TDP, with expenses like salaries, pensions and debt servicing exceeding the state's revenue. The state's public debt was 33% of its GDP at the end of the 2024 fiscal year, up from 31% four years ago, official data show.

"There is no other way to face such challenges except by way of financial hand-holding by the central government," the TDP said in a statement Thursday.