Updated: August 9, 2021 9:32:01 pm
Tamil Nadu Finance Minister PTR Palanivel Thiagarajan published a white paper Monday on the state’s finances and said that there has been “fiscal mismanagement” during the AIADMK regime over the last decade.
Thiagarajan said the approach must change if the state had to break out of the vicious cycle of increasing debt and interest rates. “This is an opportunity to effect once-in-a-generation reforms, many of which should have been undertaken years ago by any responsible government.”
Profound structural reform is the need of the hour, he said.
Reacting to the white paper, former chief minister and AIADMK leader Edappadi K Palaniswami said debt was procured only for the state’s development and that DMK had in 2011 left the state with a debt of Rs 1.14 lakh crore.
The finance minister said the state has witnessed an economic slowdown after attaining peak level in 2011-12. The state’s finances have deteriorated steadily, particularly post 2013-14.
According to the document, the government had surplus revenue from 2006-07 to 2008-09. In 2009-2010, however, revenue deficits were recorded in the aftermath of the global financial crisis and there was an overall dip in growth and revenue, with increasing expenditure as a result of implementation of the Sixth Pay Commission recommendations.
In 2011-12 and 2012-13 revenue surplus was seen again, but the improvement was short-lived and since 2013-14, the state has continuously been revenue deficit. “The worsening situation has been truly alarming,” he said.
— Dr P Thiaga Rajan (PTR) (@ptrmadurai) August 9, 2021
From a surplus of Rs 1,760 in 2012-13, the fiscal balance worsened and a revenue deficit of Rs 1,789 crore was recorded in 2013-14 that grew almost four times to Rs 6,408 crore in 2014-15 and further deteriorated to Rs 35,909 crore even before the Covid-19 pandemic struck, he observed.
The finance minister added that as a percentage of GSDP, the revenue deficit has increased from 0.18 per cent in 2013-14 to 1.95 per cent in 2019-20 to 3.16 in 2020-21, more than the permissible fiscal deficit.
Thiagarajan said the process of consulting experts to deal with the issue is already underway. One such effort is the recently formed Chief Minister’s Global Economic Advisory Council consisting of Noble Laureate Esther Duflo, former RBI governor Raghuram Rajan, former Chief Economic Advisor of India Aravind Subramanian, noted Economics Professor Jean Dreze and former Union Finance Secretary and Economic Advisor to the PM S Narayan.
The finance minister said the overall guarantees provided by the government of Tamil Nadu amounts to Rs 3,960.09 crore in 2006-07. It went up to Rs 53,697 crore in 2014-15 and started declining after 2016-17 when loans of Tamil Nadu Generation and Distribution Corporation (TANGEDCO) were taken over by the government under the UDAY scheme. “In 2019-20, Tamil Nadu has the third-highest guarantees outstanding amongst all states after Telangana and Andhra Pradesh,” he said.
The outstanding government guarantees for the financial year 2020-21 was Rs 91,818 crore. It was noted that 95 per cent of the government guarantees is on account of borrowings in the power and transport sector.
The report said the worsening deficit has led the state to be over-reliant on debt. As per the Interim Budget estimate of 2021-22, the state’s overall debt is expected to reach Rs 5,70,189 crore.
“The total revenue receipts of Tamil Nadu were at a level of Rs 40,913 crore in 2006-07, they have reached Rs 1,69,012 in 2020-21 after having peaked at Rs 1,74,526 crore in 2019-20,” the minister added.
The finance minister said the compound annual growth rate (CAGR) of the state’s own tax revenue was 11.46 per cent in the period 2006-07 and 2010-11 and subsequently it slowed down to 6.22 per cent in 2011-12 and 2015-16 and has been quite anaemic at 4.32 per cent between 2016-17 and 2020-21.
“SOTR (state’s own tax revenue) as a proportion of GSDP has been declining each year reaching 6.40 per cent in 2017-18 and 5.82 per cent in 2019-20 and finally just 5.46 per cent in 2020-21. This is a source of grave concern,” the report noted.
According to Thiagarajan, public debt is Rs 2,63,976 per family in Tamil Nadu.
He pointed out that the increasing proportion of cesses and surcharges levied by the Centre, which are not shareable with states, is a serious concern. Thiagarajan said 26 of the 60 PSUs are loss-making, adding that they are too dependent on government guarantees as their credit ratings are too low.
The report stated that government guarantees have sky rocketed from 3,466.04 crore in 2006-07 to a gigantic 90,344.13 crore in 2020-21. Outstanding government loans have increased from 1,578.69 crore in 2006-07 to 20,019.98 crore in 2020-21. Also, the outstanding debt of TANGEDCO, TANTRANSCO and STUs is 1,99,572.55 crore put together. He said the outstanding debt of TANGEDCO as of March 31, 2021 is Rs 1,24,974.69 crore, and stressed that reform in these areas cannot be postponed any further.
The finance minister said the cost per kilometre incurred by the STUs works out to Rs 96.75 as of now, whereas the revenue recovery of STUs is just Rs 37.60 per km, leading to a loss of Rs 59.15 for every kilometre operated. This has led to an accumulated loss of 42,143.69 crore in 2020-21. The figure was 8,761.69 crore in 2011-12.
On non-tax revenue, he said the state touched a high of 1.39 per cent in 2008-09 but since 2010-11, it has remained below 0.8 per cent. As per the report, the state’s own non-transport revenue is Rs 9,040 crore, which is 0.47 per cent of the GSDP.
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