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Tamil Nadu has requested the Centre to provide an aggregate amount of at least ₹1 lakh crore as a special grant to State Governments to combat the COVID 19 virus and its aftermath.
Tamil Nadu may be given a grant of ₹9,000 crore under this special dispension, Chief Minister Edapaddi K Palaniswami said in a letter to Prime Minister Narendra Modi.
The funds can be distributed in proportion of the size of each State’s GSDP to the national GDP, since the expenditure out of this grant will also pump prime the economy and lead to its revival.
"In these very difficult and challenging times, as a Prime Minister who has not shied away from taking bold, difficult and unconventional decisions in the interest of the nation, I am confident you would consider this special request and take necessary appropriate action," Palaniswami said.
All Governments will suffer substantial reductions in tax and revenue receipts and it would not be possible to step up revenue raising for a while. However, the expenditure needs and responsibilities will not wait.
"I had specifically requested you in my letter dated March 25, 2020 that as a one-time measure, the fiscal deficit limits of 3 per cent of GSDP may be relaxed for the financial years 2019-20 and 2020-21 and additional borrowing of 33 per cent above the level permitted for the fiscal year 2019-20 may be allowed for 2020-21, to enable the States to meet the additional expenditure requirements," he said.
While this will certainly help the States to immediately incur expenditure, States have a limitation on how much they can borrow in the markets and will be crippled by massive repayment obligations if they borrow too much. But the onus on reviving the economy by fueling consumption and investment falls on the Governments at this time.
Under the Indian public finance system, only the Government of India can in an eventuality, borrow freely from the monetary authority, the RBI. The economic impact of the lockdown is likely to be very severe and unprecedented. Such difficult times call for unconventional measures to ensure that the economy is revived and re-invigorated. Conventional economic doctrines and dogmas will need to be set aside temporarily, Palaniswami said.
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