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BJP ally joins chorus against borrowing riders

The Centre's insistence on power distribution reforms irks Tamil Nadu govt
EK Palaniswami
EK Palaniswami
Telegraph file picture

Anita Joshua   |   New Delhi   |   Published 19.05.20, 09:42 PM

BJP ally AIADMK’s government in Tamil Nadu on Monday joined Opposition-ruled states in questioning the Centre’s commitment to “cooperative federalism”, opposing its unilateral reforms push and imposition of conditions on the additional borrowings by states it has allowed.

The conditionalities are a new irritant to Centre-state relations, already strained by the government’s delay in paying GST compensation to the states and its attempt to blame them for the migrant workers’ misery.


“The states sought the additional borrowing limit, beyond 3 per cent of GSDP (gross state domestic product), mainly because of the significant shortfall in revenues due to the lockdown imposed in the wake of the Covid-19 pandemic,” Tamil Nadu chief minister E.K. Palaniswami wrote to Prime Minister Narendra Modi.

“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, which Palaniswami himself made public, says that “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 cooperative federalism”.

It adds that ideally, “the proposed reforms ought to have been discussed in detail with the states, a consensus developed depending on the specific conditions in each state and the reforms linked to special central Covid grants, and not to additional borrowing by the state”.

To be able to make additional borrowings, the states need to undertake reforms in four areas: a “one nation, one ration card” scheme, ease of doing business at district level, reforms with power distribution companies and the revenue generation of urban local bodies.

What has particularly irked Tamil Nadu is the insistence on power distribution reforms. Palaniswami asserted: “Our government is strongly opposed to the idea of removing free power supply to farmers.”

Like other states, Tamil Nadu believes that the mode of disbursing subsidies should be left to the states and the Centre should not dictate terms.

The Telangana government, which has seldom confronted the Modi government, has taken a similar position. State planning board vice-chairman B. Vinod has demanded that the Centre facilitate increased borrowings by the states by deferring their linking with the proposed reforms.

“It is not correct to link increased borrowing limits to these reforms when states are reeling under the coronavirus crisis. Reforms are always welcome, but they also bring in a lot of pain in the initial stages of implementation,” Vinod said.

Bengal and Kerala — whose finance ministers are known to fly the flag for the states’ rights in the GST Council despite their bitter political rivalry — too have spoken out against the conditions imposed.

Bengal chief minister Mamata Banerjee has described the permission for increased borrowings as “eyewash”.

“It has been increased from 3 per cent to 5 per cent, but we will only get 0.5 per cent. For the remaining 1.5 per cent, the states have to do away with the federal structure. We have decided not to succumb,” she told a news conference.

While welcoming the increase in the borrowing limit, Kerala finance minister Thomas Isaac protested the conditions attached.

“Most of these conditions can easily be implemented through dialogue. Centre has set a bad precedent. In future severe conditions may be imposed on even normal loans,” he tweeted.

Isaac said the Centre was using the pandemic to introduce something even the 15th Finance Commission had rejected.

“Central govt had included in the ToR (terms of reference) of the 15th FC imposition of conditions on the market borrowing of state govts. But FC in its wisdom refused to bite the bait. Now Centre has used the pandemic crisis to introduce conditions on states market borrowing. A bad precedent,” he tweeted.

Former Union finance minister P. Chidambaram too has weighed in on the Centre-state fiscal dynamics playing out through the Covid-19 crisis.

“Finance minister admitted yesterday that she has not paid the dues after December 2019 in the GST’s share. That’s a legitimate right of the states. All that they have been given is the SDRF that anyway belongs to the states and a share of the tax revenues for April 2020, which is again a constitutional right of the states,” he said.

“This is inadequate. What the states are asking is, ‘Over and above our entitlement give us grants and aid, give us a right to borrow’....”

He went on: “The constitutional statutory right to a share is already there and should already be there in the Rs 30 lakh crore expenditure budget.

“Nobody is doing any state a favour by transferring that today.... They have increased (the) limit (of borrowing)... but hedged with so many conditions that one or two states that I have spoken to said, ‘We will not be able to fulfil these conditions in the remaining seven-eight months’.”

State government, their finances stretched by the demands of dealing medically with the pandemic while also feeding, sheltering and transporting stranded migrants, have been clamouring for their GST compensation that the law mandates the Centre to release every two months.

“The states have been at the frontline of battling the pandemic but with very little help from the Centre,” said CPM general secretary Sitaram Yechury.

Punjab chief minister Amarinder Singh had used the videoconference Prime Minister Narendra Modi had called with chief ministers last week to demand his state’s dues and speak out against the micro-managing from New Delhi.

The December-January payment was due in mid-February, and the February-March payment in mid-April. Last year’s August-September compensation was released in December, and the October-November payout paid in two instalments in February and April.

While many states have had reservations about the one-nation-one-tax GST, the last few months have confirmed their worst fears.

At a recent webinar on the pandemic and local governments organised by the Thiruvananthapuram-based Gulati Institute of Finance and Taxation, Isaac said: “Unfortunately, GST has undermined fiscal space of the states.”

His former counterpart from Jammu and Kashmir, Haseeb Drabu, said the Centre was using the coronavirus outbreak to create a new form of federalism “which I call cannibalistic federalism; they are actually cannibalising the states today”.

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