Tamil Nadu to lose Rs 6,000 crore a year with Centre discontinuing state-specific grants

CHENNAI: Among the larger revenue-generating states with relatively better development indices, TN expected to see a reduction in its share of central funds under the new devolution formula. But it didn't expect it would stand to lose Rs 6,000 crore per year. That's the estimate of loss from its reduced share and discontinuance of special purpose and state-specific grants for schemes such as the health mission and Swachh Bharat.

Finance minister O Panneerselvam wrote to PM Modi some weeks ago pointing out that against 4.97 per cent share in the central taxes' divisible pool, the state's slice is down to 4.02 per cent in the 14th FC's report. "The commission's skewed formula has virtually singled out TN for the most adverse treatment," the letter reads. "Reduction in TN's share of 19.14 per cent is the biggest loss among states."

A finance official said TN's share in 13 key Centre-led programmes, including those for agricultural development, PM's irrigation project, the livelihood mission, smart cities project, housing for all and the ICDS would be larger — this also means that the Centre ultimately determines a state's expenditure priorities.

TN says it's been doubly penalized for its prudent fiscal management as it hasn't received revenue deficit grants, said Panneerselvam. Further, the Centre's converted taxes like wealth tax into cesses and surcharges that are not part of the shareable pool. "Union Budget's nixing its support to Central schemes implemented through states has a revenue impact on the state of Rs 1,137 crore per annum," a senior official said. Cutback in state-specific grants like slum improvement, support for traditional water bodies, coastal protection, among others is the bigger burden; the state received Rs 4,669 crore over the previous Finance Commission period.