As finances are ‘in dire circumstances’, a ‘business as usual’ approach can’t continue: Finance Minister
Finance Minister Palanivel Thiaga Rajan on Monday released a White Paper that showed Tamil Nadu’s finances were “in dire circumstances”, and hence a “business as usual” approach could not continue.
There was a need for structural reforms, starting with the government’s functioning and expanding to areas of policy and legislation, he said. Among such reforms was an idea to tax the rich more and use those taxes for the welfare of the poor and and the middle class, and for public works. He, however, ruled out any immediate measure to implement such an idea and said this should happen through consultations with the Chief Minister and the Cabinet.
Mr. Thiaga Rajan blamed the current situation on a lack of political and administrative will and the AIADMK’s “improper governance” in the last seven years. However, he exuded confidence that the DMK government would fix the issues, a daunting task, in its current term.
He also made it clear that the White Paper was not an attempt to create a rationale for diluting or abandoning the commitments made to people by the DMK during the recent Assembly election.
In a presentation that lasted over two-and-a-half hours, the Finance Minister said the State had revenue surplus during the DMK government in 2006-07 and 2008-09 and registered revenue deficits in 2009-10 and 2010-11 owing to the global financial crisis and the implementation of the recommendations of the Sixth Pay Commission.
In 2011-12 and 2012-13, during the tenure of late Chief Minister Jayalalithaa, the State again registered revenue surplus. “Since 2013-14, Tamil Nadu has had revenue deficits every year, even as comparator States like Maharashtra, Gujarat and Karnataka recorded revenue surpluses, even as late as 2017-18 and 2018-19. This worsening situation has become truly alarming,” he said.
Mr. Thiaga Rajan said the fiscal deficit was primarily due to high revenue deficits, with the State borrowing more and more to pay for salaries and interest on its past loans than on productive capital expenditure. “The current levels of fiscal deficit are unsustainable because the share of revenue deficit in fiscal deficit exceeds 50% or more since 2017-18,” he said.
The State’s estimated total debt outstanding would be ₹5,70,189 crore as on March 31, 2022. “As per statistics, there are 2,16,24,238 families in Tamil Nadu. Based on that, the public debt burden on each family is ₹2,63,976. This debt excludes the loans taken by undertakings like electricity board, transport undertakings and metro water,” he said.
PSUs bog down finances
The White Paper showed that the accumulated debt of the power sector and the transport sector alone was ₹1.99 lakh crore, while the accumulated losses of the two water sector boards — the Tamil Nadu Water Supply and Drainage Board and Chennai Metropolitan Water Supply and Sewerage Board — were ₹5,282.57 crore as on March 31, 2021.
The overall guarantees provided by the government of Tamil Nadu in 2006-07, which was ₹3,960.09 crore, had ballooned to ₹53,697 crore in 2014-15, mainly owing to large increases in guarantees to the power sector, which started declining after Ujjwal DISCOM Assurance Yojana (UDAY) was implemented.
However, the guarantees have risen again owing to the adverse financial situation in 2020-21 in the power and transport sectors and stand at ₹91,818.44 crore. Of this, ₹82,916.90 crore was due to the power sector. The guarantee for the transport sector, which was ₹4.25 crore in 2018-19, stands at ₹4,642.72 crore at the end of 2020-21. These guarantees represent a large contingent liability for the government, he said.
The State’s Own Tax Revenues (SOTR), which accounted for close to 70% of Total Revenue Receipts (TRR) until 2013-14, have declined and is 62.82% in 2020-21. “SOTR, as a proportion of the Gross State Domestic Product (GSDP), has been declining each year, and was just 5.46% in 2020-21. This is a source of grave concern,” the Minister said.
Mr. Thiaga Rajan also made out a case for taxing the rich more as was the practice in several developed countries. “The concept of a zero tax budget is meaningless. How can a government run without taxes? A fair share of taxes should be taken from the well-to-do class in the economy [the rich] and spend them for the development of the poor and the middle class, and for public works,” he added.
He questioned how a house on the posh Boat Club Road (in Chennai) and some other colony attract the same property tax rates. “How is it fair? Water taxes are the same for a connection in a bungalow and for a hut.”
The White Paper has been published in the public domain to invite comments, he said. The process of consulting experts and stakeholders was ongoing for taking corrective measures.
He also alleged that some vested interests would oppose reforms, but there should be a course correction and the DMK government had the political will and administrative skill to carry it out.