The new DMK government has been taking steps to ensure fiscal consolidation by improving revenue collection and plugging leakages, offering social security cover to those who deserve it, and creating more jobs for the people of the State. The result could be seen in the next two or three years, a senior official said.
The government is planning to reduce fiscal deficit -- the gap between total expenditure and total revenue -- to 3 per cent of the gross state domestic product (GSDP). "This year the fiscal deficit is 3.8 per cent and next year we are planning to reduce it to 3.6 per cent," he said. This would help reduce overall debt and save big on interest payments.
Tamil Nadu total debt is estimated to be more than Rs 6,50,000 crore. The outstanding debt, as a percentage of GSDP, is expected to be 26.24 per cent in 2023-24 and 25.93 per cent in 2024-25, which are well within the norms prescribed by 15th Finance Commission.
"The State pays Rs 40,000 crore interest on its debt each year. The interest ranges from 6.5 to 8 per cent. This year we are looking at options to restructure the debt. Most of the debts are around 10-year old. Since the interest rates are high, we are looking at whether we could swap them for loans with lower rates. The exercise will be carried out this year," the official said.
"After spending liberally during the COVID-19 pandemic, we have changed track now. We are trying to cut down on expenses but want to ensure that there are enough funds for social sector schemes and capital intensive projects," he said.
Finance Minister Palanivel Thiagarajan while presenting the budget last year said the government wants to reduce debt and increase the tax-GSDP ratio of the State to mop-up an additional Rs.65,000-crore revenue per year.
And within a year, the FM has been able to cut revenue deficit by Rs 7,000 crore. "The credit goes to data purity project where old-age pension and insurance and public distribution system databases were scrutinized to weed out unqualified and dead people from the list of beneficiaries. Revenue collection from land registration has also gone up over the last three months," the official said.
Similarly, objectives of other schemes such as 'thaliku thangam' were tweaked. The 'thangam' scheme's target is now to promote higher education among girls. Many programmes such as Litigation Advisory and Oversight Committee (LAOC) to monitor all high-risk litigations related to taxation, land acquisition and government tenders, have been introduced to address systemic weaknesses in administration.
The idea is to protect public interest and ensure accrual of financial resources to the government without delay. "The first meeting of the LAOC was held recently," the official added. Similarly, the FM has constituted a taskforce to recover government funds lying in accounts outside the purview of the treasury system.
The task force has built a database by collecting details of bank accounts where government monies were parked as on March 31, 2021, from multiple sources like banks, district collectorates, government departments and other quasi-governmental entities and recovered Rs. 2,000 crore.
The minister has also said that Integrated Financial and Human Resources Management System, the digitisation of the treasury system by integrating it with human resource and budget management, will be put in place so that there is no idling of substantial portion of the budgetary funds in bank accounts. Similarly, the FM is keen to plug leakages estimated to be up to 2 to 3 per cent of our GSDP. The leakages may be up to 50 per cent in TASMAC and up to 50 per cent in commercial taxes department, the official said.
Another major reform is the formation of an advisory council to develop a Federal Fiscal Model. The council will study the fiscal powers of the State and the Union government with special reference to the GST and the levy of cesses and surcharges by the Union government and its impact on the State's finances, analyse the fiscal scenario of the State, identify problems with the institutional mechanisms that support the GST, including the independence of decision-makers and constitution of a GST tribunal.
But economists are cautious on the possible outcome of the reforms as the State has just come out of COVID-19 and it is still unclear whether Palanivel Thiagarajan will have a free hand in carrying out the reforms. One of the important recent announcements of the government was to increase property tax by up to 150 per cent after 14 years to increase the revenue of urban local bodies.
According to Dr KR Shanmugam, director and professor of Madras School of Economics, increasing the property tax was a right move but the timing was not correct as people and businesses were just recovering from the onslaught of the pandemic. "The last general property tax revision was done in 2008 though there is provision to revise property tax once every five years under the Tamil Nadu District Municipalities Act of 1920,” he pointed out.
The State was forced to hike the property tax as the local bodies were bleeding, Shanmugham said. As the State’s Own Non Tax Revenue (SONTR) for 2020-21 has fallen drastically, the State is compelled to increase its revenue through non-tax receipts such as royalty on mines and minerals, interest receipts and through other fees and charges.
Similarly, the State could consider increasing Motor Vehicle Taxes as rates have not been revised for 15 years. While tax is levied at a specific rate for trucks and tractors, it is levied on ad-valorem basis for cars and two-wheelers. The data from the Road Transport Yearbook indicates that although the number of vehicles registered in Tamil Nadu is higher than neighboring States, the total revenue from motor vehicle taxes has not kept pace.
The main component of revenue receipts -- the State's Own Tax Revenue -- accounted for 70 per cent of total revenue till 2013-14. The proportion of SOTR to the State’s total revenue started falling after that to touch 60.74 per cent in 2018-19. In 2020-21 it stood at 62.82 per cent, according to the recent White Paper released by the State government.
However, economist Venkatesh Athreya differs on the utility of too much focus on fiscal conservatism. According to him, while the first budget was a stop-gap budget, the second one focused more on reducing fiscal deficit.
"This is not a time to worry about fiscal deficit as there is lack of demand among people. Similarly, the huge concessions given to the corporate sector by the Centre would impact the State revenues," Athreya said.
Tamil Nadu should work with other States to ensure more rational distribution of resources and there should be review of GST as a whole across the country. The Dravidian parties have never been committed to sharing their resources with local bodies, he said.
But a government official insists that the State is spending big. "We have been announcing a lot of schemes. In the education department alone we have announced schemes worth Rs.36,000 crore. We have launched Perasiriyar Anbalagan infrastructure development programme allocating Rs 7,000 crore to develop infrastructure in government schools. To upgrade facilities in government colleges, Rs 1,000 crore programme has been announced of which Rs 250 crore was provided for this year," the official said.
To improve gross enrolment ratio of girl students from government schools, we are giving them Rs 1,000 incentive per month, he added.