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TN budget - little leeway for capex

The regular budget of Tamil Nadu for 2016-17 estimates revenue receipts at Rs.148,175 crore. This marks a jump of just 7 per cent over the revised estimates of revenues of 2015-16 at Rs. 138,306 crore. The state’s tax revenues are projected at Rs 100,416 crore and transfer from the Centre at Rs. 47,759 crore. Finance Minister O Panneerselvam has not proposed any new taxes.

The budget estimates a fiscal deficit of Rs. 40,534 crore (2.96 per cent of the gross state domestic product) and revenue deficit of Rs 15,854 crore.

In line with the harsh economic conditions, both external and internal, there had been a shortfall in tax and non-tax revenues. Against projected Rs. 112,159 crore of state’s revenues, the revised estimates for 2015-16 showed revenues at Rs. 95,469 crore. Thanks to the recommendations of the 14th Finance Commission, Central transfers at Rs. 42,837 crore were much higher than the projected Rs. 31,444 crore.

Three items – employee costs (Rs 74,595 crore); subsidies and transfers (Rs. 68,211  crore) and debt servicing (interest of Rs 21, 216 crore plus repayment of a portion of debt) together almost wipe out the revenue receipts projected for 2016-17. The state will have to implement in full the recommendations of the Seventh Pay Commission that will impact on its finances more severely through the next couple of years. In the absence of buoyancy in tax revenues and Central transfers, there is the prospect of the fiscal deficit exceeding the limit of three per cent of GSDP prescribed by RBI (the projection for 2017-18 shows this at 3.34 per cent).

IE has been pointing to the strait-jacket in which the state’s finances have been stuck. The commitments under the three heads mentioned are inelastic and in the absence of buoyancy in revenue receipts, deficits will continue to balloon.  This compels the need for more borrowings as also to the modest allocation for capital expenditure. In fact, capital outlay for the current year estimated at Rs 22,369 crore shows a decline from the original budget estimate of Rs 26,853 crore projected for 2015-16.  The state has been resorting to increasing the levels of public debt. In just five years this has ballooned from a level of Rs 100,000 crore to around Rs 252,000 crore and this is increasing year after year. This means a higher outgo in the form of interest payments and repayment of a portion of debt. Already interest payments projected for the current year at Rs. 21,216 crore accounts for a seventh of total revenue receipts.

The ruling party announced the move towards total prohibition and a vast range of additional freebies. While a modest beginning, of a closure of 500 TASMAC outlets, had been made, the budget has not announced a greater thrust. Of the election promises the government has provided for 100 units of free power to households which would cost Rs. 1607 crore. The other substantial relief relates to the waiver of outstanding short-term crop loans, medium-term (agriculture) and long term (farm sector) loans issued to small and marginal farmers.

Two other features of the budget are significant. For the first time, the state has promoted the Tamil Nadu Infrastructure Fund through the TNIFMC. The company has been registered with SEBI. Rs. 2000 crore has been allocated for the Tamil Nadu Infrastructure Development Fund.  Another equally impressive projection of the budget relates to agriculture: food production is estimated to record a quantum jump to an estimated 147 lakh tonnes. The favourable monsoon, aided by the thrust on productivity improvement and crop selection are expected to help achieve this impressive target.

Elections to the corporations and municipalities are due in October.  The government continues its focus on welfare measures like construction of ten lakh new houses in five years, free laptops to five lakh students and free livestock (cattle and goats) for one lakh families.

The massive deficits and slow growth in revenues would demand corrections in the pricing of several services provided by the state. Remember such corrections made by the AIADMK government through steep revisions in power tariff, bus fares and milk prices in 2011? Be prepared for this after the municipal elections.

The success of the state in tiding over the severe power shortage and with expected rural prosperity flowing from the agricultural output, there are expectations of the state improving upon its impressive economic growth of 8.79 per cent recorded last year.

 

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