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Welcome prudence in fiscal management

It was a refreshing contrast: the Tamil Nadu budget for 2019-20 broke away from the tradition set by Dravidian parties of announcing fresh sops and freebies. The surprise was all the more given the elections to the Lok Sabha due in the next couple of months!

Deputy Chief Minister holding the finance portfolio, O Panneerselvam, increased outlays on essential sectors like social security, education, health and infrastructure, but refrained from announcing new schemes that called for larger subsidies.
I am able to see the hands of K Shanmugam, Additional Chief Secretary in-charge of Finance, who has been managing the finances of the state for long. He must have been worried over the fiscal and revenue deficits in the successive budgets caused by the implementation of the UDAY scheme (transfer of the losses of TANGEDCO to the budget), the continuous increase in the salaries and pensions of the government employees and also the interest burden resulting from mounting public debt. Look at the following figures:
The budget estimates total revenue for 2019-20 at Rs 197,721 crore. This comprises the state’s own revenues of Rs 138,140 crore and Central transfer of Rs 59,581 crore.
Against these, revenue expenditure is estimated at Rs 212,036 crore.
Three items of expenditure, salaries and pensions (Rs 96,110 crore), subsidies and transfers (Rs 82,673 crore) and interest payments (Rs 33,226 crore) alone add up to Rs 212,009 crore.

Large deficits

In successive years there have been considerable revenue and fiscal deficits. For the budget for 2019-20, the revenue deficit is estimated at Rs 14,315 crore and fiscal deficit at Rs 44,176 crore. These call for additional borrowings to meet with necessary expenditure on revenue and capital accounts. This means a further increase in debt burden estimated at Rs 43,000 crore. The net debt that will be outstanding at the end of the year is expected at Rs 397,496 crore forming 23.02 per cent of the gross state domestic product.
The budget has stepped up capital expenditure to Rs 31,251 crore (Rs 26,192 crore in RE 2018-19). There has been a welcome expenditure on essential infrastructure projects like highways and power.
The state has been burdened with a large workforce. The increase through successive pay commissions and DA revisions lent little scope for reduction. A couple of months ago the government indicated a contract system for certain services. In sectors like education, the government could also think in terms of a public-private participation model that could help improve the quality of education in the sector that is predominantly under the government.

Surplus in power

Tamil Nadu has special strengths in infrastructure. Understandably, there is a focus on strengthening urban infrastructure. Since the AIADMK assumed power in 2011, there has been a welcome focus on the energy sector. Capacity has been augmented by 13,619 MW. Today, including the Central sector projects, the state has an installed capacity of 30,191 MW. The state is already a leader in wind energy. The budget refers to impressive plans for creating solar power generation capacity to 9000 MW by 2023.
With the commissioning of the first phase of Chennai Metro Rail, the state is getting ready for the significant expansion of the metro rail network. Under Phase II of the metro rail project, a total of 172.91 km is planned to be completed over the next six years. The budget provides Rs 2681 crore for this project.
With the encouraging success of the Global Investors Meet 2019, there is a greater emphasis on industrial development: Rs 2748 crore has been provided in the budget for the industry department.

Continued focus on welfare

Tamil Nadu has a reputation for its focus on social welfare. The mid-day meal programme in schools introduced by K Kamaraj and further enhanced by M G Ramachandran as ‘Nutritious noon meal scheme’ has been adopted at the all India level. Likewise, the Chief Minister’s Comprehensive Health Insurance Scheme is now extended and expanded at the national level to Ayushman Bharat.
The state’s other pioneering programme, the Dr Muthulakshmi Reddy Maternity Benefit Scheme which provides financial assistance of Rs 18,000 to a pregnant woman, is adopted by other states. The per capita income of the state estimated at Rs 142,267 during 2017-18 in real terms. This shows a near 40 per cent growth over 2011-12. The economic growth of the state at 8.09 per cent for 2017-18 is higher than the all India projected growth rate of 7.20 per cent.
Contrary to the earlier fears over the introduction of the GST adversely affecting tax revenues, the impact has been beneficial as Tamil Nadu is also a large consumption state. The transfers from the Centre have been buoyant. However, there is concern over the substantial delays in effecting these transfers.
The Arvind Subramaniam effect could still be seen. Remember this former chief economic advisor thinking aloud on Universal Basic Income (UBI), presenting it as a radical solution for alleviating abject poverty? After Telangana, Karnataka and the Centre, the bug seems to have bitten Tamil Nadu also. Chief Minister K Palaniswami announced Rs 2000 payment to 60 lakh below poverty line (BPL) families. Now the initial disappointment of no freebies in the budget seems to have been addressed. – SV

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