Chennai, Feb 6:
Chief Minister Stalin wrote a letter to Chief Minister of Kerala Thiru Pinarayi Vijayan, regarding Kerala’s Commitment to preserving fiscal federalism.
In his letter, Chief Minister Stalin said, “I want to express my sincere appreciation for your efforts in drawing the attention of the Supreme Court to the pressing issue of the Union Government’s attempts to stifle State Governments by exercising arbitrary and discriminatory control over their deficit financing. Although this has been happening for quite some time, the situation has rapidly deteriorated in the last few years and there is a clear consensus emerging amongst progressive State governments that such indirect control over state finances needs to be done away with.
As rightly pointed out by you, the subject of Public Debt for financing the public expenditure of States is within the exclusive purview of the State Legislature as per the Constitution of India. However, the Union Government has been misusing its powers under article 293 of the Constitution of India to restrict the borrowing space of the States. The prior consent from 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. As a result, the fundamental principle of fiscal federalism envisioned by the Constitution makers is under grave threat.
In the case of Tamil Nadu also, such steps have caused a significant dent in mobilisation of funds for State initiatives. A few important instances are:
1. For the year 2023-24, the Union Government has fixed the GSDP growth for calculating the net borrowing ceiling at a mere 8%, despite the state consistently achieving around 15% nominal growth in the last two years. This has resulted in a loss of Rs.6,000 crore in borrowing space in the current year.
2. The mandatory condition of funding gross losses of State DISCOMs under the guidelines for additional borrowing for power sector reforms has forced Tamil Nadu to provide Rs.17,111 crore to TANGEDCO in the current year. This has severely constrained our fiscal space this year and is likely to affect us in the future also.
3. The intentional delay in approving the Chennai Metro Rail Phase-II project as a Central Sector project has resulted in the entire debt of Rs.33,594 crore for the project being included within the State’s net borrowing ceiling.
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. A revenue shortfall of Rs.20,000 crore per annum is being faced by the Government of Tamil Nadu in comparison to the pre-GST regime and the Union has been refusing to extend the compensation regime. In summary, the intent seems to be aimed at crippling States’ ability to raise resources and fund crucial developmental initiatives as per their policy priorities. This needs to be resisted by likeminded progressive states.
I stand 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, Chief Minister Stalin said.
