Union Budget, a mixed bag for T.N. 

February 02, 2023 12:43 am | Updated 02:10 am IST - CHENNAI

The Union Budget for 2023-24, presented by Finance Minister Nirmala Sitharaman on Wednesday, is a mixed bag for Tamil Nadu. It is silent on extending the GST compensation period and the measures that the State had sought.

The Tamil Nadu government had sought an extension of the GST compensation period that ended on June 30, 2022, by at least two years. The GST compensation accounts for less than 10% of Tamil Nadu’s tax revenue. In the absence of the GST compensation, the States need to augment their revenue by increasing compliance, plugging leakage and widening the tax base, a recent report by the Reserve Bank of India said.

The Budget has proposed to allow the States a fiscal deficit of 3.5% of the Gross State Domestic Product (GSDP) for 2023-24. And 0.5% of it will be tied to power sector reforms. In 2022-23, the States were allowed to borrow 4% of the GSDP, including 0.5% for power sector reforms.

Tamil Nadu Finance Minister Palanivel Thiaga Rajan recently told the Assembly that based on the recommendations of the 15th Finance Commission, the Tamil Nadu Fiscal Responsibility Act, 2003, was amended for the State to eliminate revenue deficit and maintain its fiscal deficit within 3% of the GSDP by 2023-24.

The Budget has proposed to extend by one more year the 50-year interest-free loan to the States to spur investment in infrastructure. It has also increased the outlay. The entire loan has to be spent on capital expenditure within 2023-24. Most of it will be at the discretion of the States, but a part of it will be conditional on the States increasing their actual capital and some of it is linked to scrapping old government vehicles and urban planning reforms, among other measures.

The amount to be received by Tamil Nadu as the share of the Central Taxes has been increased to ₹38,731.24 crore in the revised Union Budget estimates for 2022-23. This is higher than the ₹33,311 crore budgeted by the State for 2022-23. For 2023-24, the Union Budget has put the State’s share of Central Taxes at ₹41,664.86 crore, higher than the revised estimate for 2022-23.

The funds sought by Tamil Nadu, including for railway projects, do not find a mention in the Budget. While the State had sought a special Emergency Credit Line Guarantee Scheme for the micro, small and medium enterprises in the garment sector, the Union Budget has said a revamped credit guarantee scheme will take effect from April 1, 2023.

The Budget makes no mention of Tamil Nadu’s request for a Production Linked Incentive Scheme for the leather and non-leather footwear sector and for green hydrogen and electrolyzer manufacturers and a reduction in duty on imported wood to attract investment in the furniture sector.

The State is likely to benefit from the measures for replacement of the old polluting vehicles, green energy push, measures related to tourism, sustainable cities, custom duty relief for electronic goods and continuation of the concessional duty on lithium-ion cells for another year.

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