CHENNAI: The Tamil Nadu government, in its Interim Budget for 2026–27, has outlined nine major fiscal challenges arising from policies of the BJP-led Union government, stating that the State has been compelled to shoulder an additional burden of Rs. 49,881 crore.
A significant portion of this burden relates to the Tamil Nadu Power Distribution Corporation Limited (TNPDCL). Invoking Article 293 of the Constitution, the Union government has mandated the State to provide Rs. 16,290 crore towards loss funding for TNPDCL. However, the actual loss of the power utility stands at Rs. 413 crore, leaving the State to bear an additional burden of Rs. 15,877 crore in the current financial year.
Another major strain stems from GST-related issues and the Chennai Metro Rail Phase-II project. The State government said GST rate rationalisation was approved by the GST Council without adequately addressing the concerns of States, resulting in an estimated revenue shortfall of around Rs. 9,600 crore for Tamil Nadu this year. In addition, the State has incurred nearly Rs. 9,500 crore towards what it termed the Union government’s share in the Metro Rail project.
The budget also highlighted pending Union dues of Rs. 8,906 crore under schemes such as Samagra Shiksha, the Jal Jeevan Mission and Finance Commission grants. Further, deductions and reductions in IGST settlements and the State’s share of Central taxes have resulted in additional burdens of Rs. 1,790 crore and Rs. 1,202 crore respectively.
The Union government has also mandated that 5 per cent of outstanding guarantees be maintained in the Guarantee Redemption Fund (GRF), leading to an unbudgeted expenditure of Rs. 3,087 crore in the current year.
Reflecting these pressures, the State’s Own Tax Revenue (SOTR) has been revised downward to Rs. 2,06,540 crore from the original estimate of Rs. 2,20,895 crore for 2025–26. Meanwhile, revenue expenditure has risen to Rs. 3,78,917 crore from the budget estimate of Rs. 3,73,204 crore, partly due to Pongal disbursements and the advance release of Kalaignar Magalir Urimai Thogai (KMUT) benefits amounting to Rs. 10,849 crore.
As a result, the revenue deficit is now estimated at Rs. 69,219 crore in the revised estimates, compared to Rs. 41,635 crore in the Budget estimates. Total revenue receipts have also been revised to Rs. 3,09,698 crore from the earlier estimate of Rs. 3,31,569 crore.
The State government maintained in the budget document that, but for the fiscal challenges created by the Union government, the revenue deficit could have been contained in line with the original estimates.