INTERVIEW | Tamil Nadu budget lays foundation for inclusive growth, says Finance Minister PTR

After a round of structural reforms to accelerate the revenue rate and plug existing loopholes, Palanivel Thiaga Rajan, finance minister of Tamil Nadu, is now all set to go for the true long-term objectives of revenue augmentation, investment-led growth and job creation. In a freewheeling interview with The New Indian Express Resident Editor Anto T Joseph, he spoke on the state budget, social welfare schemes and the road ahead

DMK’s poll promise of Rs 1,000 honorarium for women heads of families is going to be a reality in September, making Tamil Nadu the first state to implement such a mega welfare scheme. But the budget provision of Rs 7,000 crore makes it clear that it is not going to be paid to all women heads. If that is true, what is going to be the eligibility criteria?

The chief minister is going to convene a meeting of senior ministers and will decide. Our department’s job is to crunch data, do analytics and provide options. For instance, after two years of going back and forth, we have finally reached an agreement with the CBDT chairman.

Thanks to the agreement between CBDT and Tamil Nadu e-Governance Agency (TNEGA), we will get the list of income-tax payers having TN-registered addresses. This is one of the many sets of information we are collecting to try and figure out who should be prioritised, given the constraints of a revenue-deficit state.

Going forward, how much will it cost to the exchequer? Won’t the annual bill be a massive Rs 12,000 crore starting next year?

How can you be sure? It is just that this year, we have made a budget provision of Rs 7,000 crore. You can interpret it the way you want.

That means there is lack of clarity on who will make the cut. As per the poll promise, the honorarium is supposed to be a universal scheme. What is your take on universal v/s targeted?

There are 2.33 crore families or ration cards in Tamil Nadu. If we were to give Rs 1,000 per family per month to every ration card, that is roughly Rs 27,960 crore annually. That is 1 per cent of GSDP. There is no guarantee of an immediate increase in productivity, and it creates a high risk of inflation.

The moment I increase the money available by 1 per cent of GSDP, it will drive up the cost of goods and services. As experts note, inflation is a hidden but deeply regressive tax. In the name of trying to benefit all, I should not end up damaging the poorest, the weakest and the most vulnerable. That would be the death knell of social justice.

So, the question is between ‘universal’ and ‘targeted’. At some level, we do ‘targeting’ of almost everything. In public distribution system (PDS), we have seven categories of ration cards with varying benefits. There is some application of need-basis or targeting.

Sometimes it is self-selective. For instance, we give free education. Some people come to government schools, some don’t. The notion that targeting or quantitatively assessing is antithetical to social justice is a canard. In my opinion, a conscious lack of measuring may compound matters. In the electricity board, for instance, we meter each house separately, and the free electricity of 100 units for over 2.3 crore connections costs us about Rs 6,800 crore, or roughly Rs 2,900 per connection per year.

The number of farmer connections (free electricity) stands at 23-24 lakh, and costs us about the same Rs 6,900 crore annually. Effectively, we are giving a subsidy of about Rs 30,000 a year per connection. But what is discovered by many states, and our studies is that the farmer connection may also be used for other purposes.

The connection says it is 7.5hp, but at many places up to 50hp have been found. For example, the 2020 pilot project in Srikakulam district in Andhra Pradesh found that metering led to a savings of 33.5 per cent of total consumption, even though no charge was levied on any connection. I am not saying we should charge the farmer. Definitely, it is free. But should we meter them? By not metering, are we creating scope for malfeasance and misapplication? 

When you do ‘universal’, you have to be extremely careful. At a time when the government is still running a revenue deficit, you are effectively borrowing money to fund the scheme. The borrowing is per-capita borrowing.

Everyone, including the unborn and the young children, will bear the cost equally. That means borrowing it uniformly and yet distributing it in a way that creates zero impact in terms of levelling and delivering social justice. An additional problem is that such large borrowing also drives up interest costs. That will, in turn, affect the poor and the middle class much more than the rich.

Another big problem is that a universal scheme could drive inflation. So, at some level, universal benefits do not provide a good outcome, philosophically, practically, gross cost-wise, and inflation-risk-wise, especially in an economically developed state like Tamil Nadu, with per capita income over Rs 3 lakh per year.

FOLLOW HIGHLIGHTS FROM OUR TN BUDGET COVERAGE HERE

How much do TN’s social welfare schemes cost to the exchequer?

The total subsidies and transfers are pegged at Rs 1,22,088 crore in 2023-24, marginally up from the last year’s projection of Rs 1,16,749 crore. In 2025-26, it is projected to be Rs 1,29,205 crore, around 3.6 per cent of the projected GSDP. By 2025-26, our GSDP is expected to grow to Rs 35.9 lakh crore.

You are planning to achieve zero deficit in next three years, by 2025-26. Isn’t that a little too ambitious?

As per the medium-term fiscal plan, the target is to achieve a revenue surplus of Rs 1,200 crore by 2025-26. We hope to have a revenue increase of around Rs 25,000 crore in that year to push us into a revenue surplus.

For the current financial year 2022-23, we have estimated a revenue deficit of Rs 37,540 crore, up from Rs 26,000 crore we predicted last year, due to the introduction of several new schemes. In 2024-25, when our economy is expected to grow to Rs 32 lakh crore, we project the gross deficit is likely to be Rs 18,583 crore, which is more than Rs 13,600 crore we predicted last year. In the year after, we will achieve revenue-neutral. We are on track with our projections.

Where is the revenue boost coming from?

There is a steady natural growth in volumes. And we are doing a lot of structural reforms to accelerate the rate at which the revenue grows. As our economic advisors told us during a call, we have reached the phase where we should stop putting platform consolidation or solidification of revenues as our primary focus, and that we should go for the true long-term objectives of revenue augmentation, investment-led growth and job creation.

With regard to plugging tax loopholes, we are in a much better situation today. If you ask me if we have plugged all loopholes, the answer is no. We have made lots of changes across a whole range of things over the last two years, like in audit, bill processing, treasury accounts, enforcing the guidelines and government orders (GOs), and reissuing GOs, etc. We are already reaping the benefits of the reforms that we initiated. The year 2023-24 will mark an inflexion point for Tamil Nadu.

The state has underperformed in capital expenditure. If you were to build Tamil Nadu to a world-class state, don’t you think a much higher capex is needed?

Yes, we underperformed in capex at the baseline. But we have more than made up through loans and advances (net lending). For instance, we have invested heavily in Chennai Metro. You have to look at the overall numbers of capital outlay and net lending.

Net lending is like a buffer. I can pre-fund metro projects and other developmental projects like roads, highways and bridges. The capital needed for such mega projects is very high. For 2025-26, we have projected a combined capex cum net lending of `1,08,783 crore, nearly double the current fiscal’s figures.

What are the goals of this year’s budget?

Compassion, inclusion, and innovation. All that in the context of fiscal prudence.

How do you differentiate your budget from the union budget?

First, we are not selling assets to make money. Second, I am held to a different standard of compliance (relative to the union), with so many strictures, down to the last rupee they send us, and in setting the borrowing limits. Yet, their deficit is two or three times that of ours.

At the core, I don’t think they are raising enough from the rich, and I don’t think they are giving enough to the poor. They are neither taxing progressively nor spending progressively. Theirs is not a compassionate budget that serves the masses, but one that caters to the few mega-capitalists. Ours is a compassionate budget that lays the foundation for inclusive growth.

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