Finance Minister Thangam Thennarasu on Tuesday detailed a series of fiscal challenges faced by the Tamil Nadu government, citing revenue losses, fund deductions, and additional borrowing conditions imposed by the Union Government.
Presenting the Interim Budget 2026–27 in the Tamil Nadu Assembly, Thangam Thennarasu said the State’s finances in the current year had been affected by decisions taken at the national level, particularly after the end of the GST compensation regime.
GST shortfall and IGST deduction
According to the Budget statement, the GST rate rationalisation approved by the GST Council has led to an estimated revenue shortfall of Rs 9,600 crore for Tamil Nadu in 2025–26.
In addition, the Union Government deducted Rs 1,709 crore towards IGST settlement from the State’s account with the Reserve Bank of India in April 2025. According to Thangam Thennarasu, the deduction was made “without due intimation or consultation”.
Reduction in share of central taxes
The Budget also noted that the share of Central taxes allocated to Tamil Nadu in the Union Budget 2025–26 was reduced in the Revised Estimates, resulting in an unanticipated shortfall of ₹1,202 crore for the State.
Borrowing conditions under Article 293
Invoking Article 293(3) of the Constitution, the Union Government mandated that States maintain 5 per cent of outstanding guarantees in the Guarantee Redemption Fund (GRF). Thangam Thennarasu said this led to an unbudgeted expenditure of Rs 3,087 crore in the current year.
Further, the Union Government directed the State to provide Rs 16,290 crore as loss funding to Tamil Nadu Power Distribution Corporation Limited (TNPDCL), or face an equivalent reduction in its borrowing ceiling. The Budget recorded that TNPDCL’s actual loss was Rs 413 crore, making the additional fiscal burden Rs 15,877 crore.
Withholding of centrally sponsored funds
The Finance Minister Thangam Thennarasu said releases under several centrally sponsored schemes were pending, including:
- Rs 3,548 crore under Samagra Shiksha,
- Rs 3,112 crore under Jal Jeevan Mission, and
- Rs 2,246 crore in Finance Commission grants.
“These amounts are legitimately due to the State Government,” Thangam Thennarasu stated in the Budget.
Chennai Metro Rail Phase-II funding
The Budget also highlighted issues in the funding of Chennai Metro Rail Phase-II, approved on a 50:50 sharing pattern between the Union and State Governments. Tamil Nadu has already incurred expenditure of about Rs 9,500 crore 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,” Thangam Thennarasu said in his speech in the Assembly.
Summing up the fiscal position, the Finance Minister said the combined impact of GST shortfalls, fund deductions, additional borrowing conditions, and pending releases by the Union Government had caused “severe fiscal stress” for Tamil Nadu in the current financial year.
– Magizh
