CHENNAI: Faced with a relentless pandemic and saddled with a battered economy, Tamil Nadu needs more cash than usual this year to spend on welfare and to boost industrial activity. But, data from the recently released White Paper shows that cash is one thing quite in short supply.
Though the option to borrow is open, relying on borrowings to fund the deficit is the reason for the explosion in the State’s debt. On March 31, 2021, total debt stood at Rs 4.85 lakh crore nearly a quarter of the Gross State Domestic Product (GSDP) and almost five times what it was a decade ago.
To arrest the rise in debt, the government will have to find ways to reverse the shrinking of revenue receipts and plug holes on the expenditure side.
Income gap
While the pandemic caused a decline in most income heads last fiscal year, revenue receipts as a percentage of GSDP has been declining over the past decade—falling steadily from nearly 12 per cent a decade ago to just 8.7 per cent in FY2020-21. The rollout of the GST in 2017 has also changed the tax revenue landscape.
Over the past three years, both tax and non-tax revenues have declined; as has Tamil Nadu’s share of central taxes.
While the Union government sharply raised levies on auto fuels last year, it has restructured these in a way that a majority of collections are now in the form of cesses or surcharges, neither of which are shared with state governments.
The only revenue receipt head that has increased recently is Grants-in-Aid from the Union government—which contributed over 17 per cent of total revenue receipts in 2020-21 compared to 9.75 per cent in 2010-11.
However, this is also the head that contains the Centre’s payments to compensate for the shortfall in GST collections.
This atrophying of revenue has turned Tamil Nadu into a revenue deficit state – from a revenue surplus of Rs 1,364 crore in 2011-12 to a deficit of Rs 61,320 crore in 2020-21.
Rising expenditure
While the government has resorted to funding the deficit through borrowings, there are significant problems on the expenditure side too.
Revenue expenditure, which includes the government’s spending on salaries, wages, pensions, and subsidies, has stayed largely range-bound as a percentage of GSDP over the past decade.
But, while every other head has either fallen steadily (like salaries and pensions) or see-sawed around the same levels, subsidy payments have exploded to 3.2 per cent of GSDP in 2020-21 from 1.5% a decade ago.
The State’s public-sector companies have also turned into money sinks, particularly in the power and transport sectors.
PSUs in these two sectors have an outstanding debt of nearly Rs 2 lakh crore and thousands of crores of accumulated losses.
Their tariffs are also far lower than their costs TANGEDCO, on average, loses Rs 2.6 for every unit of power supplied, and transport undertakings lose Rs 59.15 every kilometre.
Fixing finances
Fixing this income gap will need broad reforms in tax and subsidy structures, but it won’t be easy.
The State can raise taxes in segments that have started to under-contribute, but this will come with a political cost.
The same will be the case for fixing legacy problems in power and transport, where PSU tariffs remain far lower than costs and subsidies have edged into unsustainable territory.
The way forward
If the government is to fix the income-expenditure gap, not only will it need to increase tariffs and taxes or find a way to reduce the cost of supply (ideally both), it will also need to implement a system that is far more efficient at targeting subsidies
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D Godson
Class XII student in Alangulam
‘Bus fare will not be increased’
CHENNAI: Three days after the finance minister cited not increasing bus fare in correspondence with diesel price hike as one of the reasons for the transport department’s mounting debts, Transport Minister RS Raja Kannappan on Thursday clarified that bus fares will not be increased.
“We have decided to serve the people and not let the fund crunch affect them,” Kannappan told press persons at Saidapet after inaugurating bus services.
A total of 23 buses were introduced on 18 routes, of which 11 are old routes.
The Minister also said that the transport department will replace old buses gradually.