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Little for development

Tamil Nadu budget for 2014-15 presented by finance minister O Panneerselvam has proceeded on familiar lines. The emphasis on social sector, extending subsidies over vast areas and an increase in salaries and pensions to government servants have continued. With elections to the Lok Sabha due in the next couple of months, this focus has been accompanied by no proposal for new taxes.

 Revenue receipts are estimated at Rs 127,000 crore and total expenditure at Rs 153,000 crore leaving a fiscal deficit of Rs 25,714 crore.

The budget estimates for 2014-15 point to total revenue receipts comprising state’s own revenue of Rs 99,919 crore and Central transfers of Rs 27,470 crore. Against this, salaries (Rs.35,721 crore), pensions and retirement benefits (Rs 16,021crore) and non-wage Operations & Maintenance (Rs 10,796 crore) together account for Rs 62,538 crore; subsidies and transfers are estimated for the current year at Rs 49,068 crore; interest payments at Rs 15,464 crore. These three items together amount to  Rs 127,070 crore against the revenue receipts estimated at Rs 127,390 crore. In this, we have not included the servicing of the debt.

 

Subsidies pile up...

There is a continuing focus on social welfare through liberal subsidies and transfers that are estimated to account for around Rs 49,068 crore. Major items include subsidies for power and food, each accounting for around Rs 5000 crore; extending security to farmers around Rs 4000 crore; free distribution of mixies, grinders and fans at Rs 2000 crore; distribution of school text books, laptops and other student welfare schemes and scholarships Rs 4000 crore; medical insurance Rs 750 crore; marriage assistance Rs 750 crore; maternity benefit Rs 700 crore and free dhoties and saris Rs 500 crore.

 The fiscal deficit estimated at Rs 25,714 crore is sought to be met by borrowing an additional Rs 20,000 crore. This means that the public debt would register further increase by the end of March 2015 calling for larger interest payments and larger quantum of repayment of debt.

 

Lowest growth in a decade...

During 2012-13, the growth of the state’s gross domestic product was 4.14 per cent, much less than national growth of 4.9 per cent. The severe power shortage affected the industrial and agricultural sectors seriously impacting economic growth. As a consequence, revenue receipts also registered a decline. There was a shortfall of Rs 2734 crore in commercial taxes receipts estimated at Rs 64,624 crore. For the same reason of slowdown in economic growth, there was a decline in grants and aid from the Central government.

 The Dravidian parties, both the DMK and the AIADMK, have been placing a larger emphasis on social welfare committing increasing amounts on subsidies and a large number of support schemes to the neglect of economic growth. While the approach has been helpful in winning votes over the short term, the impact on long term development has been severe. Infrastructure development has suffered serious neglect evidenced by the poor additions to power capacity over a 20 year period covering four five year plans from 1992 to 2012. Urban transportation has suffered neglect. Even the flagship scheme of the Metro Rail for Chennai has been suffering delays and cost overruns. Funding these with external assistance with no scope for generation of foreign exchange further adds to the debt service burden due to currency depreciation.

 

Power shortage, high cost of land...

The severe power shortage and the very high cost of land pose serious deterrents for fresh investments. With limited natural resources and absence of perennial rivers, the state is heavily dependent on skills based development. The divisive nature of the Tamil society comes in the way of approaching development issues with any united effort. The antagonisms among political parties are so deep-rooted that there has been little effort to bring about consensus on a long term and medium term visions  for the state. The competitive populism results in spending the limited and scarce resources more on freebies than on creating assets that will sustain growth and employment. In this background, the annual budgets have become mere rituals.

 

 

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