There is satisfaction over the higher growth rate estimated at 8.03 per cent registered by Tamil Nadu through 2017-18 as also over the state maintaining its position as the second largest economy of India (after Maharashtra)
The state continues to hold pole status in social welfare, most notably, health, family welfare and education. The focus on welfare measures for decades has helped in eliminating abject poverty. The percentage of people below poverty line was 11.28 per cent in 2011-12, way below the national average of 21.92 per cent.
The record is praiseworthy in the context of little natural resources and the absence of perennial rivers. The state focused on building a robust infrastructure notably, its highways; Tamil Nadu was among the first to complete 100 per cent electrification which helped in the spread of development all across the state. The state has four large ports across the long coastline, which is a major attraction for foreign trade and foreign investments. The stress on education right from the 1950s also helped in the proliferation of small and medium enterprises and the copious supply of educated workforce. Add to this, a secure network of hospitals taking care of primary, secondary and tertiary healthcare.
Salaries, Subsidies and interest higher than revenue…
However, the over-emphasis on welfare has landed the state’s finances in disarray. The focus on making available public services – transport and power – at tariffs much below costs has resulted in steep budget deficits leaving little resources made available for development.
The DMK in its early years set on a path of expanding employment. The nationalisation of bus transport, taking the teachers and other staff from aided educational institutions on government payrolls and the expansion of the public sector resulted in steep increase in government employment. The implementation of the recommendations of the successive Finance Commissions has been contributing to regular and steep increases in salaries, pensions and retirement benefits. In the budget estimate for 2018-19 these two items alone account for Rs 77,533 crore; they take away 44 per cent of the state’s revenue.
The vast range of welfare measures that include universal coverage of heavily subsidised food, free power for agriculture, the CM health insurance scheme and targeted assistance to women, children and weaker sections are estimated to cost Rs 75,723 crore. These form around 43 per cent of revenue.
Such high level of expenditure has been resulting in a sizeable increase in budget deficits. The revenue deficit, for instance, has snowballed from Rs 3531 crore in 2009-10 to Rs 12,964 crore in 2016-17. The fiscal deficit has been rising steeper; it was Rs 30,259 crore for 2016-17; Rs 40,736 crore for 2017-18 and estimated at Rs 44,481 crore for 2018-19. These mean borrowing increasing amounts year after year for bridging the gap between expenditure and revenue. Public debt stood at Rs 57,457 crore in 2005-06, increased to Rs 101,439 crore in 2011-12, to Rs 314,366 crore during 2017-18. For 2018-19 this is expected to increase further to Rs 355,845 crore.
Look at what this means towards servicing this debt: interest payments alone are estimated at Rs 29,624 crore for 2018-19 forming nearly 17 percent of total revenue. Factor in this repayment of a portion of the debt. Even without this the three items listed above, namely salaries, wages and pensions, subsidies and transfers and interest payments account for more than total revenues (104 per cent).
Fair pricing of public services
There is a need for structural reforms over vast areas. First and foremost is the need to go for fair pricing of public services. There is little rationale for offering 100 units of power free or for universal food subsidies. The entire welfare measure should be targeted to the 11.28 per cent of the population below the poverty line. This targeting will have the twin purpose of raising these men to above the poverty line and saving precious resources for the development of infrastructure. The state has been resisting for decades reforms of the power sector and was among the last to adopt the beneficial Ujwal DISCOM Assurance Yojana (UDAY) scheme. Even in this, the state government got an exemption from periodic revision of tariff related to cost advised by the Electricity Regulatory commission.
Protect the sanctity of contracts
There are welcome signs of the government addressing these long pending issues. A few of the items merit mention. The first relates to contract-farming. A recent idea mooted suggests permitting contract farming. This experiment had been attempted and failed. Decades ago ITC tried this in a big way in Andhra Pradesh: the company extended technology and support over vast areas including finance and built export outlets. The scheme failed when the farmers reaped the benefits but sold the produce in the market at higher prices .
We should also relate this to the breakdown of the tenancy system in Tamil Nadu!
The Tenancy Protection Act of the 1950s resulted in the tenants merrily failing to meet the contractual obligation of sharing even the small 25 per cent share with the landowner. Local dadas acquired control over the lands of the absentee landlords. The contract, when it is sacrosanct, will be meaningful. The government should ensure the immediate enforceability of the agreement and penalties for breaching it.
Agglomerate land holdings
The problem also lies in land holdings being small. An immediate need is the agglomeration of land holdings. The average farm size in Tamil Nadu is less than two acres. And with rapid urbanisation and the emerging urban-rural continuum, land prices have shot up. IE has been suggesting agglomeration of land holdings on high priority. With resistance to the acquisition of land and its high cost, the policy can permit leasing of land over 15 years and more without alienating ownership. Several states like Punjab and Rajasthan have already done this. Lands of size will lend for the application of science, technology and management and hence for profitability.
Another development relates to the recently floated idea on contract employment in government offices. Engaging employees on contract can address the issue of regular and steep increase in wages. Of course, trade unions will protest. But then the current system of salary taking away close to half of the government’s revenues is not sustainable.
Penalty for efficiency…
Recently an idea was floated for the 15th Finance Commission; it suggested shifting the base for the population from 1971 to 2011. This shift will grievously affect Tamil Nadu and Kerala. These states have been prudent and exceptionally forward-looking in containing population growth. If the population base is changed, these states will get penalised for their efficiency. In the absence of charismatic leaders like Karuna-nidhi, MGR and Jayalalithaa, who could peremptorily opt for populism over a long-term development agenda, the present government should choose for an efficient, corruption-free and robust administration as the base for winning recognition from the public for re-election.