How Opposition-Ruled States Have Clashed With the Centre Over Funds

Beyond the formal, rules-based Finance Commission devolution process covered in our earlier article, several opposition-ruled states have had specific, high-profile disputes with the central government over funds they say they are owed. This article looks at three of the most significant recent cases and how each was ultimately resolved.

Kerala’s Borrowing Limit Challenge

Kerala took the unusual step of directly challenging the Centre’s authority over state borrowing limits in the Supreme Court, arguing that the central government’s restrictions on how much the state could borrow from the market had left it in a genuine fiscal crunch. The Supreme Court, however, rejected Kerala’s plea seeking relaxation of the borrowing limit set by the Centre, according to Business Today’s coverage of the April 2024 ruling, a setback for the state’s legal strategy, though the Centre separately offered Kerala a one-time grant of Rs 5,000 crore to help ease the fund crunch, an offer Kerala’s government rejected, according to reporting carried by The Hindu, on the grounds that a one-time grant did not address what the state characterised as a structural, ongoing borrowing-limit constraint rather than a temporary shortfall.

Also read: Disaster Relief Funds: How Centre-State Disputes Play Out

West Bengal’s Multi-Year MGNREGA Freeze

West Bengal’s dispute centred on funding for the Mahatma Gandhi National Rural Employment Guarantee Scheme, the rural jobs guarantee programme, which the central government had suspended for the state over allegations of corruption and irregularities in fund utilisation, a suspension that stretched on for an extended period despite West Bengal’s government disputing the allegations. According to Deccan Herald’s reporting, the state’s ruling Trinamool Congress claimed the Centre owed West Bengal roughly Rs 52,000 crore in unpaid MGNREGA dues accumulated across the suspension period. The dispute eventually reached the courts, with the Calcutta High Court directing the scheme’s resumption, and the Supreme Court subsequently dismissing the Centre’s plea against that High Court order, according to Legally Present’s coverage of the October 27, 2025 ruling, a decision the state’s ruling party characterised, according to National Herald India’s reporting, as a “supreme blow” to the Centre’s position and a vindication of the state’s long-standing objection to the fund freeze.

Karnataka’s Drought Relief Dispute

Karnataka separately pursued its own legal challenge against the Centre over delayed disaster relief funding, arguing the central government had failed to release drought relief assistance the state was constitutionally and statutorily entitled to receive during a period of severe agricultural distress. The dispute proceeded through the Supreme Court, which ultimately directed the release of Rs 3,454 crore in drought relief funds to the state, a resolution that, while providing Karnataka the specific relief it sought, still took considerable time and required judicial intervention to achieve rather than being resolved through the ordinary administrative fund-release process alone.

The Common Pattern Across These Disputes

Looking at these three cases together reveals a consistent underlying pattern: each dispute originated from a specific, disputed administrative or fiscal decision by the central government affecting an opposition-ruled state, each state pursued formal legal or constitutional remedies rather than resolving the dispute through direct political negotiation alone, and in two of the three cases, West Bengal’s MGNREGA freeze and Karnataka’s drought relief, the courts ultimately ruled at least partially in the state’s favour, while Kerala’s more structurally ambitious challenge to the borrowing-limit framework itself was rejected, suggesting courts have been more willing to intervene in specific, bounded fund-release disputes than in broader challenges to the Centre’s general fiscal policy-setting authority over states.

Read this next: River Water Disputes: How the Modi Government Has Handled Them

The Centre’s Perspective

The central government’s position across these disputes has generally emphasised that fund releases and borrowing limits are governed by uniform, nationally applicable rules and conditions, including fiscal responsibility norms and, in West Bengal’s specific case, documented concerns about fund misutilisation that the Centre argued justified the suspension regardless of the state’s political affiliation, a framing that positions these disputes as administrative and fiscal-discipline matters rather than the politically motivated targeting that the affected opposition-ruled states have often alleged.

Bottom Line

Kerala, West Bengal, and Karnataka have each pursued distinct legal battles against the Centre over funds in recent years, with Kerala’s broader challenge to state borrowing limits rejected by the Supreme Court in April 2024, West Bengal’s years-long MGNREGA suspension ultimately ordered resumed after the Supreme Court dismissed the Centre’s appeal in October 2025, and Karnataka securing Rs 3,454 crore in drought relief funds through its own legal challenge, together illustrating both the genuine leverage courts can provide opposition-ruled states in specific fund disputes and the limits of that leverage when a state challenges the Centre’s broader fiscal policy-setting authority itself.

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Abhyudaya Verma