Tamil Nadu, the second largest state economy after Maharashtra, is predominately a service economy with 51.86 per cent contributed by the services sector, 36.24 per cent by secondary sector and 11.90 per cent by the primary sector.
The state economy is resilient and is quick to recover after some years of slowdown in growth due to problems like drought and cyclone. In 2017-18, as per the advance estimate, the growth rate of Tamil Nadu at constant prices is estimated at 8.09 per cent compared to the all India growth rate of 6.68 per cent. The prospects for 2018-19 are quite good. Per capita income of the state has gone up from Rs.92,984 in 2011-12 to Rs 126,179 during 2017-18 in real terms.
The State’s Own Tax Revenue (SOTR) has gone up from Rs.47,782 crore in 2010-11 to Rs.93,737 crore in 2017-18. The budget estimate of SOTR for 2018-19 is Rs.112,616 crore. As per present trend, the state will achieve this target.
Why is capital expenditure not growing?
There was a downward trend in the SOTR growth from 2013-14 onwards, which has picked up only in 2017-18. The devolution formula of the 14th Finance Commission is adverse to Tamil Nadu. In fact, Tamil Nadu is at the bottom-most amongst states in terms of revenue devolution growth after the 14th Finance Commission. This amounts to a reduction in devolution from the Central government of Rs.6000 crore-Rs 7000 crore per annum. Added to that, the state has to bear the additional cost of Centrally-sponsored schemes due to a revision in the cost-sharing pattern from 75:25 to 60:40 in most of the Centrally-sponsored plans. Apart from this, the additional burden on the revenue expenditure due to the implementation of UDAY scheme and the Seventh Pay Commission, has increased the state’s revenue expenditure substantially without corresponding increase in the SOTR and Central devolution. As a result, revenue deficit has gone up in recent years. Correspondingly, the resource available for capital expenditure got squeezed.
In the budget estimate 2018-19, capital expenditure is projected at Rs.28,283 crore. The state is hopeful that the 15th Finance Commission will be more fair and equitable. With the impact of UDAY and the seventh Pay Commission getting phased out in a couple of years, the state will be in a position to push up capital expenditure.
In spite of resource constraints, the expenditure on health sector, which was Rs.4716 crore in 2010-11, has gone up to Rs.11,679 crore in 2018-19. Similarly, expenditure on school and higher education, has gone up from Rs.13,370 crore in 2010-11 to Rs.31,941 crore in 2018-19. It is also relevant to point out here that about 26 externally-aided projects worth Rs.22,807 crore are under implementation from 2011-12 onwards. Thus expenditure on critical sectors, especially infrastructure, is going at a good pace.
Foreign Direct Investments in Tamil Nadu
Tamil Nadu continues to be an attractive destination for industrial and other investments. GIM 2015 had given a boost for such investments. The Vision 2023 document unveiled by late Chief Minister J Jayalalithaa has provided a framework for the state’s future development. From April 2000 to June 2018, total FDI investment into the state is about Rs.160,497 crore, of which FDI received from 2011 to June 2018, is Rs.129,649 crore, ie. nearly 80 per cent of the FDI has been received between 2011 and 2018. The state is a better performer regarding ease of doing business and in creating a single window clearance mechanism for investments.
The state has become friendlier to the investors with an attractively structured package of assistance with project-specific incentives. The state has also promptly responded to the existing investors to switch over from VAT incentive regime to a more-friendly post-GST incentive framework.
GIM 2019 will be a game-changer for the state in the industrial front.
