What went wrong with Tamilnadu’s finances

PTR Palanivel Thiagarajan

Chennai: Tamilnadu Minister for Finance and Human Resources Management PTR Palanivel Thiagarajan on Monday published the White Paper on the State’s finances and said the deterioration in the finances in the past seven years will be reformed in the next five years.

Releasing the 120-page report to the media here, he pegged the losses suffered by the State transport undertakings at Rs 42,000 crore last year.

The accumulated loss of the State Transport Undertakings (STU) in 2020 to 2021 is Rs 42,143.69 crores, which was Rs 871.69 crores in 2011 to 2012. “STUs are making a loss of Rs 59.15 for every kms operated,” he added.

Stating that the Grants in aids increased from 8.13 per cent from 2006 to 2007 to 17.10 per cent of revenue receipts in 2020 to 2021, he said this undermined the financial independence and federalism.

“Tamilnadu lost Rs 2,577 crore since the previous government failed to conduct local body election on time,” the Minister said.

Asserting that Zero Budget is beneficial only for financially empowered, Thiagarajan said the total revenue receipts of Tamilnadu has declined to 8.7 per cent of GSDP in 2020-21
from the peak 13.35 per cent of GSDP in 2008-09.

“SOTR has declined from 11.46 per cent between 2006 to 2011 to 4.32 per cent between 2016 to 2021,” he added.

He said the worsening deficit situation has led the State to be over-reliant on debts and pegged the public debt Rs 2,63,976 per family.

Thiagarajan said this white paper was to enable the Members of the Legislative Assembly and the people to understand the true status of their government’s finances.

“To provide an accurate and detailed statement of the present fiscal position of Tamilnadu, the challenges posed, and the fiscal risks and vulnerabilities we face,” he said, adding,
this White Paper analyses the trends in State’s fiscal position, current economic scenario and summarizes the findings, impact and implications for the State and also the actions to be taken in the conclusion sections.

“We hope this report will provide a common understanding of the variables that both direct and constrain the Government’s actions and policies, as we work to ensure that we fulfill
our commitments to the people. Such a common understanding is in keeping with Chief Minister M K Stalin’s vision of a transparent Government that functions with continuous engagement with the electorate.”

The report details the state of the core finances of Tamilnadu, with an examination of the path that led to this situation. It further deepens the analysis to review the status of major Public Sector Enterprises and agencies that provide essential services such as water, power, transportation, and local administration to the people of the State.

‘Need for once in a generation reforms’

Palanivel Thiagarajan said the fiscal situation of the State is in dire circumstances, which now provides an opportunity to effect ‘once in a generation’ reforms that should have been taken years ago.

He said the fiscal situation of the State was in dire circumstances, in part due to extraneous circumstances, but in substantial measure due to structural flaws in governance which have not
been rectified in a timely manner.

“The Covid pandemic has greatly exacerbated the situation and highlighted how vulnerable Tamilnadu currently is. There are no buffers left. No fiscal headroom that will allow for delay,” he said.

He said “business-as-usual cannot continue, and our approach must fundamentally change if we are to break out of this vicious cycle of increasing debt and interest costs”.

“On the other hand, this is an opportunity to effect ‘once in a generation’ reforms, many of which should have been undertaken years ago by any responsible government,” he added.

Stressing the need to contain interest costs in order to minimise or reduce the State’s revenue deficit, Dr Thiagarajan said that will require us to bring our debt relative to GSDP under control.

In any democratic country it is difficult for the government to drastically cut spending, much less so when a newly elected government has promises to fulfill, that will require significant additional spending, he noted.

He said the revenues will have to be raised in an equitable manner, as debt will otherwise balloon, and interest payments will overwhelm the budget.

“In the last 3 to 4 years borrowing has been resorted to even for non-discretionary spending like salaries, pension and interest payments which were for many years before met out of the regular revenue receipts of government,” the Minister said. “This practice must be stopped,” he said.

 

NT Bureau