TN interim budget: Finance minister accuses Centre of fiscal squeeze, flags rising debt

TAmil Nadu finance government minister Thangam Thenarasu on tues accused the BJP-led Centre of “ unnaturally precipitating” a financial crisis in the tell while presenting the interim budget in the Assembly, the last budget of the Dravida Munnetra Kazhagam (DMK) government before the assembly elections scheduled for this summer.Presenting the Revised Estimates (RE) for 2025–26, Thenarasu said Tamil Nadu’s outstanding debt had risen to ₹9,52,374 crore from ₹9,29,959 crore projected in the Budget Estimates (BE) for 2025–26. “...the Union government appears to leave no stone unturned to artificially precipitate a fiscal crisis in Tamil Nadu,” the minister said in the House.He said the outstanding debt figure includes ₹9,523 crore that should have been reflected in the Union government’s accounts following approval of the Chennai Metro Rail Phase-II project as a Central Sector project. He said, despite the Centre taking up the project under a 50:50 cost-sharing arrangement, the state had not received the full benefits. “Even after repeated requests, the necessary book adjustment entries have not been carried out by the Union Government leading to an artificial increase in our debt,” he said. This, he added, has adversely affected the state’s debt-to-GSDP ratio and reduced its ability to borrow within permissible limits, impacting liquidity.Highlighting the state’s economic performance, Thenarasu said Tamil Nadu recorded double-digit economic growth of 11.19% in 2024–25, ranking first in the country. He added that the state leads India in electronics exports, accounting for 41.2% of the national total.Criticising the recommendations of the 16th Finance Commission tabled in Parliament earlier this month, the minister said the report was disappointing as there was no increase in cesses and surcharges. “Among states, yet again, Tamil Nadu has been unfairly treated by the Commission by not giving our due and legitimate share,” he said. Thenarasu noted that Tamil Nadu’s share in central taxes had declined steadily since the Ninth Finance Commission, when it stood at 7.9%, to about 4% now, resulting in a cumulative loss of ₹3.17 lakh crore — around 33% of the state’s outstanding debt. He pointed out that while neighbouring Kerala and Karnataka received increases of 23.7% and 13.2% respectively under the 16th Finance Commission, Tamil Nadu was granted a marginal increase of just 0.44%, the lowest among comparable states. “We are seeking equality, not generosity,” he said.The minister also accused the Centre of “step-motherly” treatment towards Tamil Nadu, saying it had strained the state’s finances. Over the last five years, the state had sought ₹50,922 crore as relief for climate- and monsoon-related floods and disasters, but only ₹1,151 crore had been sanctioned. “In a federal polity, there have been several instances in the past where states have been unfairly treated by the Centre. However, I firmly believe that the extent of challenges faced by this government is unprecedented,” Thenarasu said.In terms of allocations, the interim budget earmarked ₹48,534 crore for the School Education Department, ₹13,062 crore for Transport, ₹18,091 crore for Energy, ₹4,282 crore for Industries and Investment Promotion, and ₹1,943 crore for the Micro, Small and Medium Enterprises (MSME) Department.Thenarasu announced that the state is preparing to roll out a shipbuilding policy shortly and will establish a ₹5,200-crore shipbuilding cluster in Thoothukudi district. Memorandums of understanding have already been signed with leading shipbuilding companies, including Union government public sector undertakings and a global shipbuilding firm, involving proposed investments of around ₹30,000 crore.He reiterated the demand for central approval of metro rail projects in Coimbatore and Madurai, after the Centre rejected the detailed project reports citing population criteria. The budget also allocated ₹11,000 crore for the Tamil Nadu Assured Pension Scheme for government employees, recently announced by chief minister MK Stalin. An allocation of ₹4,000 crore was made for free bus travel for women, and ₹20 crore for renovation of churches and mosques.The growth rate of the State’s Own Tax Revenue (SOTR) is projected at 14% in 2027–28 and 2028–29. SOTR is estimated at ₹2.06 lakh crore in the RE for 2025–26 and is projected to rise to ₹2.29 lakh crore in the Interim Budget Estimates for 2026–27, aided by improved economic activity following trade deals with the US and European Union, despite the adverse impact of last year’s GST rate rationalisation.After accounting for unbudgeted expenditures, including ₹15,877 crore towards loss funding for the Tamil Nadu Power Distribution Corporation Limited and ₹3,087 crore for the Guarantee Redemption Fund as mandated by the Centre, the total revenue expenditure increased from ₹3,73,204 crore in BE 2025–26 to ₹3,78,917 crore in the RE. The revenue shortfall for the current financial year is estimated at around ₹9,600 crore.The government has also spent ₹10,849 crore on welfare measures, including providing ₹3,000 per family during the Pongal festival and the recent transfer of ₹5,000 to women beneficiaries under the Kalaignar Mahalir Urimai Thittam scheme. Ahead of the elections, the chief minister credited ₹5,000 to each beneficiary — ₹1,000 each for February, March and April, along with an additional ₹2,000 as summer assistance — a move criticised by opposition parties. “Despite these increases, the overall rise in expenditure has been limited to ₹5,713 crore due to savings in non-development expenditure,” Thenarasu said. In the Interim Budget Estimates for 2026–27, total revenue expenditure is projected at ₹3,93,272 crore, a growth of 3.7% over the RE for 2025–26.Capital expenditure in the RE is estimated at ₹51,443 crore, compared with ₹57,231 crore in the BE for 2025–26. Revenue expenditure for 2026–27 is pegged at around ₹3.9 lakh crore, reflecting a 3.7% increase over last year’s RE.The revenue deficit in the RE for 2025–26 is estimated at ₹69,219 crore, up from ₹41,635 crore in the BE, which the minister attributed to GST rate cuts and withholding of funds by the Centre. “Without these fiscal challenges created by the Union Government, the Revenue Deficit in the current year could have been contained in line with the Budget Estimates,” he said.For 2026–27, the revenue deficit is projected at ₹48,696 crore. The fiscal deficit is estimated to decline to 3% of GSDP in 2026–27, further reducing to 2.89% in 2027–28 and 2.8% in 2028–29, the minister said.