Imposing pointless conditions on loans will stifle States: Tamil Nadu CM

Palaniswami was referring to conditions put forward by Centre to raise borrowing limits from 3% to 5% of GSDP for this financial year

Tamil Nadu Chief Minister Edappadi K Palaniswami has criticised the Central government's move to impose conditions such as linking states' borrowing requirement with reforms in the power sector, in order to get additional limits. He said such a move will serve as an impediment to the State governments' efforts in mobilising funds to ease the serious financial situation vaused by Covid-19. 

Palaniswami was referring to the conditions put forward by the Central government to avail the benefit of raising borrowing limits from three per cent to five per cent of the Gross Domestic Product (GSDP) for this financial year. He said that the State government has already undertaken the reforms in many areas without expecting any financial assistance, but there are some areas, most specifically power distribution, which are politically sensitive. 

Palaniswami said his government is strongly opposed to the idea of removing free power supply for farmers and has taken the stand that the mode of disbursement of subsidy should be left to the states themselves. 

"Since a consensus is yet to emerge on these issues, I request you to instruct the concerned Ministries to remove the requirements to reform the power sector from among the proposed conditions and also to allow greater latitude to States in implementing a reform agenda," he said in a letter to the Prime Minister Narendra Modi.

"Imposing needlessly onerous conditions on borrowings will constrain the State Governments in raising funds to meet essential expenditure in the wake of the serious financial situation," he added.

The States sought the additional borrowing limit, beyond three percent of GSDP mainly because of the significant shortfall in revenues due to the lockdown imposed in the wake of the Covid 19 pandemic. 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. 

"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 co-operative federalism. 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. Linking the Central Government’s power under Article 293(3) of the Constitution to permit additional borrowing by the States to conditionalities, is unprecedented," he further stated.

He sought the Prime Minister to appreciate and understand the difficulties that States face at this time and instruct that the necessary changes be made to the relevant guidelines. 

He also thanked the Prime Minister and the Government of India for having announced the five tranche economic relief package, which I hope will help to revive the Indian economy. The additional allocation for the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) and for establishing Infectious Diseases Blocks in district hospitals and public health laboratories at the Block level are very significant measures.