TN unhappy with Centre’s conditions for hiking borrowing limit

Tami Nadu has strongly opposed the Centre imposing conditions for granting additional borrowing limits to State governments. This was conveyed by the Chief Minister Edappadi K Palaniswami in a letter to Prime Minister Narendra Modi.

“Imposing needlessly onerous conditions on borrowings will constrain the State governments in finding funds to meet essential expenditure in the wake of a serious financial situation. I am confident you will appreciate and understand the difficulties that States face at this time and instruct that the necessary changes be made to the relevant guidelines,” the letter said.

The Tamil Nadu government was responding to the Centre hiking States’ borrowing limit to 5 per cent of GSDP (3 per cent under FRBM Act, earlier) as part of a relief package to enhance liquidity in the context of the ongoing pandemic.

What seems to have touched a raw nerve in the State seems to be the idea of removing the free power supply to farmers. “It has been our stand that the mode of disbursement of subsidy should be left to the State governments themselves,” Palaniswami said. “Since a consensus is yet to emerge on these issues, I request you to instruct the concerned Ministries to remove the requirements to reform the power sector from amongst the proposed conditionalities and also to allow greater latitude to States in implementing a reform agenda,” he said.

He made it clear that the AIADMK government is strongly opposed to the idea of removing free power to the farmers.

The States had sought additional borrowing limit, beyond 3 per cent of GSDP mainly because of the significant shortfall in revenues due to the lockdown imposed in the wake of the Covid-19 pandemic. There are also large additional expenditure commitments. “These are borrowings by the State Government, which have to be repaid from future tax revenues of the States. They are not grants from the Centre. To attach needlessly demanding conditionalities to the additional borrowing requirements appears to be unreasonable,” the letter said.

Palaniswami said that the proposed reforms should have been discussed in detail with the States, a consensus developed depending on the specific conditions in each State. “Aggressively pushing a reform agenda on which a consensus is yet to be developed at a time when States have approached the Centre for additional borrowing out of sheer desperation, is not in keeping with the spirit of co-operative federalism,” he emphasised.

“Linking the Central Government’s power under Article 293(3) of the Constitution to permit additional borrowing by the States to conditionalities, is unprecedented,” he said.

In Tamil Nadu’s context, while in some of the four major areas of reform required by the Government of India to avail of the additional borrowing, the State government has already undertaken the reforms without expecting any financial assistance. There are some areas, most specifically in the area of power distribution reforms, which are politically sensitive, he added.