Tamil Nadu Interim Budget | Centre ‘artificially precipitating’ fiscal crisis in State: Thangam Thennarasu

Tamil Nadu Finance Minister Thangam Thennarasu on Tuesday (February 17, 2026) said the state is facing unprecedented fiscal challenges from the Union government, which seems to be leaving no stone unturned to “artificially accelerate” a financial crisis in Tamil Nadu.

Outlining a number of these challenges while presenting the Interim Budget 2026-27 in the Assembly, Mr. Thennarasu said the Goods and Services Tax (GST) rate rationalization was approved by the GST Council without taking into account the concerns and opposition recorded by various States. While States may be reeling under the financial stress that arose following the end of the GST compensation regime, this hasty implementation has dealt another significant blow to State finances. The revenue deficit of the Tamil Nadu government is estimated to be around ₹ 9,600 crore in the current financial year.

Read the full budget speech here.

In April 2025, the Union government collectively deducted ₹ 1,709 crore from the State’s account with the Reserve Bank of India (RBI) for IGST payment without due warning or consultation. This has increased the revenue gap under GST and severely constrained our finances in the current financial year, Mr. Thennarasu said. The share of Central Tax allocated to Tamil Nadu in the Union Budget 2025-26 has been reduced in the Revised Estimates. This has resulted in an unexpected deficit of ₹ 1,202 crore in the current financial year of the State government, the official added.

Using its powers under Article 293(3) of the Constitution of India to fix the debt ceiling of the States, the Union government has mandated that a level of 5% of outstanding guarantees be maintained in the Guarantee Repayment Fund (GRF). In his speech, the Finance Minister said that this requirement was suddenly introduced in the current financial year, leading to extra-budgetary expenditure of ₹3,087 crore.

Further, in exercise of the powers under Article 293, the Union government has mandated the State government to pay an amount of ₹16,290 crore as Loss Financing to the Tamil Nadu Power Distribution Corporation Limited (TNPDCL); Otherwise, the equivalent amount will be deducted from the State’s debt ceiling. Compared to TNPPDCL’s actual loss of ₹413 crore, this has resulted in an additional expenditure of ₹15,877 crore in the current financial year, he said.

TN affiliated funds

At a time when all State governments are under pressure due to increased spending commitments, Tamil Nadu is also being denied releases under Centrally Sponsored Schemes that are legitimately affiliated with the State. These include the amount of ₹ 3,548 crore retained by the Union government under the Samagra Shiksha Scheme, denial of a total amount of ₹ 3,112 crore under the Jal Jeevan Mission and Finance Commission Grants of ₹ 2,246 crore not given to the State government, Mr. Thennarasu said.

Even after the Union government approved the long-pending demand to take over the Chennai Metro Rail Phase-II project on 50:50 sharing model, the full benefits of this project were not received by the State government. He said the State government had spent around ₹ 9,500 crore as payment towards the Union government’s share and this continues to be reflected as part of the outstanding debt of the State.

This not only negatively impacts the Government’s debt/GDP ratio, but also affects our liquidity by reducing our ability to borrow within our allowable borrowing limits. He added that despite our repeated reminders, the Union government has not taken action on our demand so far.