Summary of "TN Fin Min Thangam Thenarasu Exclusive | Federalism and Fund Twist | India Today Conclave South 2025"

Interview Summary

The interview with Tamil Nadu Finance Minister Thangam Thenarasu at the India Today Conclave South 2025 focused on the contentious issues surrounding fiscal federalism in India, particularly the allocation of funds between the central government and states, and the challenges faced by Tamil Nadu as a progressive, opposition-ruled state.

Key Points:

Imbalance in Fiscal Responsibilities and Resources:
- Since independence, there has been a structural flaw where states bear about two-thirds of expenditure responsibilities (education, health, infrastructure) but generate only about one-third of the revenue. This imbalance has persisted over decades, straining state finances.
- The introduction of GST was expected to correct some of these issues, but states’ revenues have not been adequately protected or compensated, especially post-COVID.
Political Partisanship and Its Impact on Fund Allocation:
- Tamil Nadu, governed by an opposition party, faces deliberate fiscal discrimination from the central government led by the BJP.
- Examples include withholding of funds for school education (around ₹4,000 crores pending), disaster relief funds not matching actual damages, and reduced central share in centrally sponsored schemes (from 75% to 60%).
- The center uses policy disagreements (e.g., Tamil Nadu’s refusal to implement Hindi as a third language) as a pretext to deny funds.
Disaster Management and Climate Change Funding:
- Tamil Nadu has suffered multiple major disasters in recent years, but central funds released are only fixed annual amounts, not commensurate with actual damages.
- The minister stressed the need for the central government to be more generous in allocating funds for long-term capital expenditure aimed at climate change mitigation and disaster resilience, beyond immediate relief.
Environmental Initiatives in Tamil Nadu:
- Tamil Nadu is a leader in sustainable development and environmental protection, with the highest number of Ramsar sites (20) in India.
- The state enforces strict pollution control and is actively expanding forest cover and promoting the blue economy to balance ecological protection with coastal livelihoods.
GST and Fiscal Autonomy:
- The GST regime has centralized fiscal power, reducing states’ autonomy. The GST Council is dominated by the center, and cess collections go directly to the central government, further reducing states’ revenues.
- Recent GST rationalization was imposed without proper consultation, violating the cooperative federalism principle.
- Tamil Nadu estimates losses due to GST changes at ₹5,000 to ₹10,000 crores. Compensation promised to states post-2022 has stopped, leaving states financially vulnerable.
- States bear two-thirds of expenditures but receive only about 41% of the tax revenue, a decline from previous commissions.
Calls for Structural Reforms:
- The minister advocates for a rule-based, transparent system for fiscal allocations to avoid partisan discrimination.
- Suggests the creation of an autonomous fiscal council to oversee fair distribution of funds between center and states.
- Criticizes successive finance commissions for penalizing states like Tamil Nadu that have implemented progressive policies such as population control.
- Emphasizes that developed states should not be penalized for good governance and growth; their prosperity ultimately benefits the entire country.
Summary of Demands:
- Fair and non-partisan fiscal federalism respecting cooperative federalism principles.
- Adequate compensation and protection of states’ revenues, especially in GST reforms.
- Increased central funding for disaster management and climate adaptation capital projects.
- Structural revamp of finance commissions and GST Council functioning to ensure equity.