NE BUSINESS BUREAU
CHENNAI, AUG 9
Tamil Nadu’s fiscal situation is in dire circumstances and business as usual attitude cannot continue as there are no buffers left and no fiscal headroom that would allow delay, said a white paper released here on Monday by state Finance Minister Palanivel Thiaga Rajan.
தமிழ்நாட்டின் நிதி நிலைமை குறித்த வெள்ளை அறிக்கை வெளியீடு – நேரலை #TNGovtWhitePaper https://t.co/2G71rkE5eE
— Dr P Thiaga Rajan (PTR) (@ptrmadurai) August 9, 2021
The serious fiscal scenario is in part due to extraneous circumstances, but in substantial measure due to structural flaws in governance which have not been rectified in a timely manner, the first such report by the DMK government after it assumed office in May said.
மான்புமிகு நிதி மற்றும் மனித வள மேலாண்மை அமைச்சர் @ptrmadurai அவர்கள் இன்று வெளியிட்ட மாநில நிதி நிலை குறித்த வெள்ளை அறிக்கையில் இடம்பெற்ற சில முக்கிய தகவல்கள்
முழு அறிக்கையை பதிவிறக்கம் செய்ய :
https://t.co/9HPTQIIQJA
https://t.co/dXxUIDDrSl pic.twitter.com/rHW4GF1moR— Office of PTR (@OfficeOfPTR) August 9, 2021
The worsening deficit situation has led the state to be over-reliant on debt and the public debt is Rs 2,63,976 per family in Tamil Nadu.
Speaking to reporters, Thiaga Rajan said the decline is reversible with his party led government’s “political will and administrative skill.” However, the white paper is not an attempt to abandon commitments made to the people during the recently concluded elections, he said.
“We understand that profound structural reforms in many aspects, starting with the government’s functioning, and expanding to many areas of policy and legislation, will be needed to achieve our ambitious goals.”
The party is in power for only about three months and a turnaround would be facilitated in a step by step fashion during the five year term, he said. Asked if there would be upward revision in state taxes including those for registering vehicles, he said “corrections” are needed, pointing to non-revision for the past about 15 years.
Chief Minister Stalin would look into it and ministers holding portfolios of specific departments would discuss with him, he said. The government has to take a decision in this regard, he said, adding the importance should be to fields including social welfare initiatives like Old Age Pensions rather than to people who buy a car for one crore rupees.
“Take from few and give to many in a fair way…zero tax is meaningless,” he said and stressed on equitable system of taxes. Indicating reforms, he said the Rs 4,000 COVID-19 cash relief to rice ration card holders has also gone to income tax payers and government employees.
Similarly, there is lack of clarity on actual beneficiaries of welfare schemes like ones that provide subsidy to buy scooters. There is no adequate data when it came to subsidies and this should be corrected and some schemes are being contemplated to address the situation, he said.
Emphasising on transparency, he said in some departments, in-house, internal audit was being done and in such a scenario, there would be no scope for fairness.
“The basic system has to be changed.” Approximately, one lakh crore rupees was “lost” while incurring expenditure due to factors including inefficiency, he said.
The DMK had often targeted the AIADMK rule while in opposition for mismanagement and the ruling party had promised a white paper on fiscal situation for ensuring “transparency.”
The report said the Covid-19 pandemic has greatly exacerbated the situation and highlighted how vulnerable Tamil Nadu currently is.
“There are no buffers left. No fiscal headroom that will allow for delay.” “Business-as-usual (attitude) cannot continue, and our approach must fundamentally change if we are to break out of this vicious cycle of increasing debt and interest costs.
On the other hand, this is an opportunity to effect once in a generation reforms, many of which should have been undertaken years ago by any responsible government.”
The white paper says the fiscal position of Tamil Nadu has been deteriorating for the past eight years and such a long-term trend has affected development investments which in turn has affected growth.
Between 2006-13, in five out of seven years, TN had a net revenue surplus. However, since 2013, revenue deficit has become a recurring phenomenon. The DMK was in power during 2006-11 and AIADMK from 2011 to 2021. Tamil Nadu’s Revenue Deficit (RD) stands at Rs 61,320 crore (FY 2020-21) which is 3.16 per cent of Gross State Domestic Product.
The average RD for all states and UTs was 0.1 per cent of GDP in 2017-18 and 2018-19, and for TN it was 1.5 per cent and 1.4 per cent of GSDP respectively. The Fiscal Deficit (FD) of the state for FY 2020-21 is Rs 92,305 crore (4.43 per cent of GSDP).
“The current levels of fiscal deficit are unsustainable primarily because a substantial portion of the fiscal deficit is simply to fund the revenue deficit.”
The ratio of RD as a per centage of FD is 52.48 per cent for 2016-21 and it was just 14.94 per cent in 2011-16. This rising trend of revenue-deficit-driven fiscal deficits “must be funded mainly by borrowing,” which has sharply increased the total debt outstanding.
The period since 2012-13 has seen a continuous increase in the overall debt level of the state government. It is expected to reach Rs.5,70,189 crore on March 31, 2022 as per the Interim Budget Estimates of 2021-22 and accordingly, “public debt as a percentage of GSDP is 26.69 per cent. It is worthwhile to note that, the public debt as a percentage of GSDP was 18.37 per cent in 2007.” The total outstanding debt in Revised Estimates 2020-21 is Rs.4,85,502.55 crore which is already 24.98 per cent of GSDP.
TN’s outstanding liabilities as a percentage of GSDP are significantly higher than comparator states of Maharashtra, Gujarat and Karnataka.
“Tamil Nadu has the dubious distinction of currently being the largest borrower in the open market amongst all states in India.” Almost every state has reduced the public debt-GSDP Ratio between 2003-2019. Tamil Nadu was also following the trend by reducing the ratio from 26 per cent to 17 per cent until 2012. However, the situation has been worsening since then. Fiscal deficit financed by “Other means” for 2016-21 was a staggering 12.68 per cent of the total Fiscal Deficit and in real numbers it is Rs 39,071 crore. Particularly in the last 3 years, amounts drawn from the public account to manage fiscal deficit are significant and more than 10 per cent of the FD in proportion, the white paper reveals.
