Palaniswami fumes at Centre, says pushing reforms agenda against co-op federalism

He also said it is unreasonable to attach conditionalities for borrowings beyond three per cent of the state gross domestic product (GSDP).

Flagging electricity distribution reform as 'politically sensitive,' the Chief Minister strongly opposed snapping free power supply to farmers and made it categorical that the mode of disbursement of subsidy should be left to the State governments and batted for "greater latitude" to states to implement reforms.

One of the conditions of the Centre to states to increase their borrowing limit was discontinuation of free electricity to farmers.

The Centre, as part of the conditions, has asked states to switch to Direct Benefit Transfer instead.

Free power distribution to farmers is among the initiatives over which both the Dravidian majors -AIADMK and DMK- have vied with each other to take credit for helping the peasants.

In a letter to Prime Minister Narendra Modi, the text of which was released to the media here, Palaniswami said: "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 cooperative federalism."

Palaniswami wrote the letter in response to the announcements made by Union Finance Minister Nirmala Sitharaman on Sunday on increased borrowing limits for states to five per cent for 2020-21.

On Sunday, the Union Finance Minister had said that part of the borrowings will be linked to specific reforms (including recommendations of the Finance Commission). Reform linkage will be in four areas: universalisation of 'One Nation One Ration Card', ease of doing business, power distribution and urban local body revenues.

She said the two per cent increase in borrowing limit will be divided into three slabs: 0.50 per cent increase will be unconditional; one per cent increase in four tranches of 0.25 per cent with each tranche linked to clearly specified measurable and feasible reform actions, and further 0.50 per cent if milestones are achieved in at least three of the four reform areas.

While the increase in borrowing limits is allowed by the central government for 2020-21, the conditionalities are of long-term nature.

Palaniswami said, 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 added.

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

Pointing out to other large expenditures borne by the state governments, Palaniswami said the additional borrowings will be paid out of future tax revenues.

"They are not grants from the Centre. To attach needlessly demanding conditionalities to the additional borrowing requirements appears to be unreasonable," Palaniswami said.

Palaniswami said the state government is strongly opposed to the idea of removing the free power supply to farmers.

"It has been our stand that the mode of disbursement of subsidy should be left to the state governments. Since a consensus is yet to emerge on these issues, I request you to instruct the Ministries concerned to remove the requirements to reform the power sector from amongst the proposed conditionalities and also to allow greater latitude to the states in implementing the reform agenda," Palaniswami told Modi.

 "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," Palaniswami added.