Tamil Nadu Chief Minister M.K. Stalin wrote to his Kerala counterpart Pinarayi Vijayan on February 6, 2024, appreciating Kerala for moving the Supreme Court against the Union government’s attempts to “stifle State governments” over finances, and further hoped to collaborate to address this “crucial challenge”.
Mr. Stalin said Tamil Nadu faced a revenue shortfall of ₹20,000 crore per annum in comparison with the pre-GST regime, and that the Union had been refusing to extend the compensation regime.
Criticising the “discriminatory and unconstitutional attempts” pushed by the Union government, the T.N. CM said the Centre’s intent seemed to be aimed at “crippling” States’ abilities to raise resources and fund crucial developmental initiatives. This needs to be resisted by like-minded progressive States, he said.
In the letter to Mr. Vijayan, Mr. Stalin said although this had been happening for quite some time, the situation had rapidly deteriorated in the past few years and there was a clear consensus emerging amongst progressive State governments that such indirect control over State finances needed to be done away with.
‘Centre misusing powers’
Endorsing that public debt to finance public expenditure of States was within the exclusive purview of the State Legislature as per the Constitution, Mr. Stalin said the Union government, however, had been misusing its powers under Article 293 of the Constitution to restrict the borrowing space of the States.
“The prior consent from the Union government, mandated by this section, has been converted into a restrictive tool to limit deficit financing beyond the limits prescribed by the State FRBMs [Fiscal Responsibility and Budget Management Act] ,” Mr. Stalin said.
As a result, the fundamental principle of fiscal federalism envisioned by the Constitution makers was under “grave threat”, Mr. Stalin said and pointed out how such steps had caused a significant dent in the mobilisation of funds for Tamil Nadu.
The Union government had fixed the GSDP growth for calculating the net borrowing ceiling at a mere 8% for 2023-24, despite T.N. consistently achieving about 15% nominal growth in the last two years. This had resulted in a loss of ₹6,000 crore in the borrowing space in the current year.
The mandatory condition of funding gross losses of State power distribution companies (Discoms), under the guidelines for additional borrowing for power sector reforms, has forced Tamil Nadu to provide ₹17,111 crore to Tangedco (T.N. Generation and Distribution Corporation) in the current year. “This has severely constrained our fiscal space this year and is likely to affect us in the future also,” he said.
The “intentional delay” in approving the Chennai Metro Rail Phase-II project as a Central sector project had resulted in the “entire debt” of ₹33,594 crore for the project being included within the State’s net borrowing ceiling, he said.
“These discriminatory and unconstitutional attempts are being pushed by the Union government at a time when the fiscal autonomy of the States has already been seriously curtailed by the implementation of GST,” he said.
Mr. Stalin said he stood in full support of the government of Kerala’s commitment to preserving fiscal federalism. “The government of Tamil Nadu is ready to extend its cooperation in this regard and we look forward to collaborate and synchronise our efforts to address this crucial challenge.”
