Opposing what he described as the Centre’s “needlessly onerous conditions” for raising the borrowing limit of State governments, Chief Minister Edappadi K. Palaniswami on Monday conveyed to Prime Minister Narendra Modi his strong opposition to discontinue free power supply to farmers, which is among the conditions stipulated by the Union government.
In a letter to Mr. Modi, which was released to the media, the Chief Minister said, “Our government is strongly opposed to the idea of removing free power supply to farmers. It has been our stand that the mode of disbursement of subsidy should be left to the State governments [to decide].”
On Sunday, the Centre had advised Tamil Nadu and other States to discontinue the scheme of free power supply to farmers, and go for direct benefit transfer instead. This was among the conditions the States needed to fulfil to get their borrowing limit hiked beyond 3% of the Gross State Domestic Product (GSDP).
Referring to a recent communication from the Union Finance Ministry which laid down certain conditions, Mr. Palaniswami said, “Imposing needlessly onerous conditions on borrowings will constrain the State governments in finding funds to meet essential expenditure in the wake of a serious financial situation.”
Aggressively pushing a reform agenda, on which a consensus was yet to be developed, at a time when States were approaching the Centre for additional borrowing out of sheer desperation, was “not in keeping with the spirit of co-operative federalism”, Mr. Palaniswami contended.
Ideally, the proposed reforms ought to have been discussed in detail with the States and a consensus developed, depending on the specific conditions in each State. The reforms should have been linked to special Central COVID grants, and not to additional borrowing by the State, the CM said.
Linking the Central government’s power to permit additional borrowing by the States under Article 293(3) of the Constitution to conditionalities was unprecedented, Mr. Palaniswami said.
“Since a consensus is yet to emerge on these issues, I request you to instruct the Ministries concerned to remove the requirement to reform the power sector from the proposed conditionalities, and also to allow greater latitude to States in implementing a reform agenda,” the CM said.
The States had sought an increase in the borrowing limit primarily due to a significant shortfall in revenue as a result of the COVID-19 lockdown.
Additional commitments
“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 unreasonable,” the CM said.
While the State government had already undertaken reforms in some of the four major areas specified by the Centre, without expecting any financial assistance, there were other areas, specifically power distribution reforms, which were “politically sensitive”, Mr. Palaniswami said.