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Tamil Nadu’s finances are not in great shape

Deputy Chief Minister, O Panneerselvam, who handles finance also, in his budget speech presented a detailed report on the performance of the different departments and listed the allocations.

The budget for 2020-21 estimates a revenue of Rs 219,375 crore comprising Rs 149,429 crore of state’s own revenues and Rs 69,946 crore as Central transfers in the form of shared taxes and grants.

Total expenditure, excluding interest, amounted to Rs 241,601 crore. Of these, employee costs including salaries and pensions amounted to Rs 109,749 crore, subsidies and transfers for Rs 94,100 crore and interest payments Rs 37,210 crore. These three items exceed total expenditure. Hence, the capital outlay of the proposed Rs 36,368 crore has to be met from net borrowings of around Rs 59,209 crore.

There is a big jump in revenue deficit to Rs 21,618 crore, much higher than provided in the revised estimates for 2019-20 and fiscal deficit at a record of Rs 59,346 crore.

This means further increase in the debt burden of the state presently estimated at Rs 456,661 crore. This means larger provision for interest and repayments next year.

There had been continuous deterioration in the overall finances of the state due to the difficulty in augmenting revenues through taxes and increased tariffs, fares and charges levied on public utilities, notably power and transport. For several years in a row TANGEDCO has been incurring huge losses. Same in the case of the performance of the state transport corporations that operate around 25,000 buses. The tariff structure of power provides subsidies to the entire sections of the consumers. eg. 100 units of consumption offered free and further 100 units offered at Rs 2 per unit, much less than cost.  Why not target to the poorest sections?

The state has been unique in offering such concessions as universally applicable. Even in regard to supply of food, the state entitles this to its entire population. Likewise, bus fares have been kept low resulting in mounting losses for the state corporations.

After the introduction of GST the state has few options for raising resources through tax, limited to liquor, cigarettes, petrol, diesel… Hardly ten days ago, the state increased the cost of liquor by Rs 10-Rs 20 a bottle per 180 ml.

The two major political parties, the AIADMK and DMK, have captured power through liberal populist schemes. Most other political parties have also followed this dependence on populism. This impacts severely on the state’s finances.

The fault doesn’t lie with UDAY
The state resisted for long to come under the Ujwal Discom Assurance Yojana (UDAY) introduced by the Centre to bring a measure of uniformity and in financial prudence. The state reluctantly fell in line but unfortunately did not adhere to the condition of quarterly revision of tariffs. The last revision was made in 2011 soon after Jayalalithaa assumed charge as chief minister. Even the huge increases in salaries and pensions by successive pay commission recommendations and the increases in the prices of coal, oil and other production costs have not been factored in relating tariffs to costs.

The fault doesn’t lie with UDAY.

The other problem relates to the delay in the Centre’s transfer of the state’s share of taxes and non-tax allocations.

The sizeable growth in the state’s GDP has helped in keeping the fiscal deficit to less than the mandated 3 per cent.

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