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Pre-budget meeting: Tamil Nadu seeks unconditional borrowings of 5% GSDP for FY 2022-23 owing to COVID-19

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Also, Tamil Nadu demanded a comprehensive revival package for MSMEs severely affected by the pandemic induced lockdown besides a roll-back of the 12 percent tax (from 5 percent) for textile and apparel sector.Pre-budget Meeting: Tamil Nadu Seeks Unconditional Borrowings Of 5% GSDP  For FY 2022-23 Owing To COVID-19

With the States incurring huge expenditure to combat the COVID-19 pandemic with substantial reduction in revenues, the Tamil Nadu government on Thursday sought the Centre to permit State borrowings of 5 percent of the GSDP without any conditions for 2022-23 fiscal. Also, Tamil Nadu demanded a comprehensive revival package for MSMEs severely affected by the pandemic induced lockdown besides a roll-back of the 12 percent tax (from 5 percent) for textile and apparel sector.

Addressing the pre-budget consultation meeting with finance ministers of States and Union Territories, chaired by Union Finance Minister Nirmala Sitharaman in the national capital on Thursday, Tamil Nadu Finance Minister P T R Palanivel Thiagarajan said the Union Government's pre-conditions for availing additional borrowing limit of 1 percent (0.5 percent for capital expenditure and 0.5 percent for power sector reforms) of the GSDP, adversely affects the State finances and its patterns of expenditure.I urge the Union Government to permit the States to borrow unconditionally within the prescribed limits. Further, as the States have incurred huge expenditure to fight COVID-19 with substantial reduction in revenues, I urge the government to permit borrowing of 5 percent of GSDP without any conditions for 2022 – 23 fiscal, Thiagarajan stressed.

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Pointing out that the second COVID-19 wave had severely affected the MSME sector in Tamil Nadu due to closure during the lockdown, loss of demand, disruptions in supply chain and shortage of labour, the Minister called upon the Centre to develop a comprehensive revival package for MSMEs including concessional credit, loan moratorium and deferment of statutory dues. These, he argued was because the full benefits of the series of stimulus measures already announced by the Centre has not reached the last mile. A special infrastructure support scheme for creating export related to MSMEs may be announced, he said and wanted the Centre to reexamine the policy of SIDBI and include State Finance Corporations in extending low-cost funds for the benefit of the MSMEs.

Expansion of the VOC port in Thoothukudi with Outer Harbour project including dredging of upto 17 m draught in order to reduce dependency on Colombo port to trans-ship Indian goods, expediting the final sanction by the Cabinet Committee on Economic Affairs for Chennai Metro Rail Phase II project for a 50:50 equity share between Tamil Nadu and the Centre, release of adequate funds for speedier execution and completion of railway projects pending in the State, funding for the National Institute of Pharmaceutical Education and Research (NIPER) project and waiver of customs duty on wood imported for an international furniture park to be set up in Thoothukudi were among the projects which Thiagarajan hoped would be accommodated in the union budget.The Union Budget is an integral part of fiscal federalism and has assumed even greater significance at a time when the finances of all States are under severe stress due to the COVID-19 pandemic, Thiagarajan said and added that recognising the importance of adequate fiscal resources and autonomy, the fathers of the constitution provided States with some powers of taxation and mandated a sharing of taxes between Union and States.

This original balance which was already skewed against true fiscal federalism has been skewed even further towards the Union over a period of time. The increased levy of cesses and surcharges, which do not form part of the divisible pool of taxes, has adversely affected the transfer of resources to the States, he claimed.Cesses and surcharges as a proportion of the Gross Tax Revenue of the Centre have almost tripled from 6.26 percent in 2010-11 to 19.9 percent in 2020-21. In effect, States are deprived of a share in approximately 20 percent of the revenue collected by the Union. If these taxes were added to the divisible pool, the States would have obtained an additional transfer of approximately Rs 1.5 lakh crores as their share from the pool of central taxes in FY 2021-22.

While the share in taxes is a legitimate right and provides the State the autonomy to cater to local needs and aspirations, the grants-in-aid are discretionary and tied funds. This greatly impinges on the federal structure enshrined in the Constitution. I strongly urge the Union Government to merge the cesses and surcharges into the basic rates of tax so that the States receive their legitimate share in devolution, he said.