Tamil Nadu interim budget 2026: Finance minister Thangam Thennarasu accuses Union govt of creating fiscal crisis

CHENNAI: Tamil Nadu finance minister, Thangam Thennarasu, on Tuesday said DMK govt faced unprecedented challenges and accused Union govt of deliberately creating a fiscal crisis in the state.

Presenting the interim budget for 2026-27, he detailed various actions by Union govt that he said led to this situation. “In every field, be it denial of sanction of major infrastructure projects for Tamil Nadu, withholding of release of funds for Centrally sponsored schemes, curtailment of tax revenues without due consultation, or unfair imposition of conditions to mandate expenditure, Union govt appears to leave no stone unturned to artificially precipitate a fiscal crisis in Tamil Nadu.”





He listed several specific challenges contributing to state's fiscal stress. They include termination of GST compensation regime, which resulted in a revenue shortfall of an estimated Rs 9,600 crore for the current fiscal year. He also pointed to the Centre deducting Rs 1,709 crore for IGST settlement from state’s account in the RBI without prior intimation or consultation. Furthermore, the share in central taxes for Tamil Nadu in Union budget 2025-26 was reduced in the revised estimates, causing an unanticipated shortfall of Rs 1,202 crore in the current fiscal.

Union govt’s use of Article 293 (3) of the Constitution for fixing borrowing ceilings for states was also a point of contention. This mandate required states to maintain a level of 5% of outstanding guarantees in the Guarantee Redemption Fund (GRF). The sudden imposition of this requirement in the current fiscal led to an unbudgeted expenditure of Rs 3,087 crore for Tamil Nadu.

Additionally, under Article 293, Union govt mandated state to pay Rs 16,290 crore as Loss Funding to the TNPDCL. Failure to do so would result in an equivalent amount being deducted from state’s borrowing ceiling. This condition, when compared to actual loss of Rs 413 crore for TNPDCL, resulted in an additional expense of Rs 15,877 crore in the current fiscal.

More so, a sum of Rs 3,548 crore was withheld by Union govt under the Samagra Shiksha Scheme, Rs 3,112 crore under the Jal Jeevan Mission, and a sum of Rs 2,246 crore of Finance Commission grants was not released to Tamil Nadu govt. “Even after approval by Union govt of the long-pending demand to take up the Chennai Metro Rail Phase II project in a 50:50 sharing pattern, entire benefits of the project were not received by state govt,” Thennarasu said. The state govt incurred an expense of Rs 9,500 crore as payment towards Union govt’s share. This amount continued to be reflected as part of state’s outstanding debt.

Thennarasu said these actions adversely affected state’s debt-GSDP ratio. They also reduced state's ability to borrow within its permissible limits, thereby impacting its liquidity. Despite repeated reminders, Union govt did not act upon these requests. “These are but a few challenges faced by state govt in the current fiscal, where severe fiscal stress was caused by the actions of Union govt, which had a destabilising impact on state finances,” the minister said.