Chennai, February 17 Tamil Nadu Finance Minister Thangam Thenarasu on Tuesday, while presenting the Interim Budget for 2026-27 in the Assembly, alleged that the union government's actions have caused severe fiscal stress, which has a destabilizing impact on the state's finances.
Explaining the challenges faced by the government in the current financial year, he said that the GST rate rationalization was approved by the GST Council without considering the apprehensions and opposition expressed by several states.
Even as states are struggling with fiscal stress caused by the termination of the GST compensation regime, this hasty move has resulted in another significant blow to the state's finances. The government of Tamil Nadu is estimated to have a revenue shortfall of around Rs 9,600 crore in the current financial year.
In April 2025, the union government deducted a large sum of Rs 1,709 crore from the state's account with the Reserve Bank of India for IGST settlement, without prior intimation or consultation. "This has further exacerbated the revenue shortfall under GST, severely constraining our finances during the current financial year," he said.
The share of central taxes allocated to Tamil Nadu in the Union Budget 2025-26 has been reduced in the Revised Estimates. This has resulted in an unanticipated shortfall of Rs 1,202 crore for the Government of Tamil Nadu in the current financial year.
Using its powers under Article 293(3) of the Constitution of India to fix the borrowing ceilings for states, the Union government has mandated that a level of 5 per cent of outstanding guarantees must be maintained in the Guarantee Redemption Fund (GRF). This condition was imposed suddenly in the current financial year, resulting in an unplanned expenditure of Rs 3,087 crore.
Furthermore, exercising its powers under Article 293, the Union government has mandated that the state government pay Rs 16,290 crore as Loss Funding to Tamil Nadu Power Distribution Corporation Limited (TNPDCL), or an equivalent amount will be deducted from the state's borrowing ceiling.
Compared to the actual loss of Rs 413 crore for TNPDCL, this condition has resulted in an additional expenditure of Rs 15,877 crore in the current financial year. At a time when all state governments are facing pressure due to rising expenditure commitments, Tamil Nadu is also being denied funds under centrally sponsored schemes that are rightfully due to the state.
These include an amount of Rs 3,548 crore withheld by the Union government under the Samagra Shiksha Scheme, denial of a sum of Rs 3,112 crore under the Jal Jeevan Mission, and an amount of Rs 2,246 crore of Finance Commission grants which have not been released to the state government.
Even after the Union government approved the long-pending demand to undertake the Chennai Metro Rail Phase-II project on a 50:50 sharing pattern, the entire benefits of this project have not been received by the state government.
He said: "Our government has incurred an expenditure of approximately Rs 9,500 crore as payment towards the Union government's share, which continues to be reflected as part of the state's outstanding debt. This not only adversely affects the state's debt-GSDP ratio but has also reduced our ability to borrow within our permissible borrowing limits, thus affecting our liquidity. Despite repeated reminders, the Union government has not acted upon our request so far."
He added: "These are just a few of the challenges faced by the state government in the current financial year, where the actions of the Union government have caused severe fiscal stress, which has a destabilizing impact on the state's finances. Despite these challenges, the chief minister has ensured that every promise made to the people of this state is fulfilled through his relentless efforts and unwavering commitment."