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Cover Feature

Published on: May 18, 2021, 12:51 p.m.
The deficit squeeze
  • File picture of the Chennai Metro

By M.R. Sivaraman

The revised fiscal position of Tamil Nadu appears delicate, with a huge revenue deficit of Rs65,994 crore, as estimated in the interim budget for 2021-22, which constitutes 4.99 per cent of the fiscal deficit. In the first Covid year (2020-21), TN was not as badly hit as some other states, but the second wave looks ominous, making it difficult for any new finance minister to present a budget incorporating all the promises made during the election campaign.

A cash dole of Rs4,000 to every ration cardholder, as promised, would require Rs8,000 crore to fulfil; this will be in addition to the several hundred crores of rupees needed for meeting the losses on account of the reduction in milk prices and free travel on buses for women. There are other poll promises too, such as the waiver of co-operative society loans and students’ educational loans. All these will aggravate the revenue deficit further and consequently, the fiscal deficit too.

Tax receipts may not be buoyant either. If the government pushes the envelope on borrowing, then its cost of borrowing will be high, with total interest costs rising even further. Also, three DA instalments are pending for government employees, and that could add up to another R8,400 crore, excluding the arrears.

Stalin has one of the most qualified finance ministers in the country, with a rich experience in managing high finance. So, what are his options to have a functioning budget? Palanivel Thiagarajan could look at new revenue measures, but there are no options on the tax front. Small changes in the rates of MVT may yield a few crore, as evasion here is not possible. He can make all registrations of automobiles online, as that would improve efficiency and also fetch more revenue to the state. He could tighten the sales of minor minerals, which are now being looted in the state.

One neglected area is the collection of professional tax, which most do not pay. The FM could ensure that it is collected properly from every profession in every municipality in the state and reduce funds transfers to the municipalities from the state to that extent. There are many areas where expenditure could be streamlined; for instance, the use of office cars by bureaucrats.

Industries are the backbone of any state’s robust economy. We have seen so many senseless agitations, some of them sponsored by vested interests, badly hurting the state’s industrial climate and scaring away prospective investors. For instance, Sterlite Copper in Thoothukudi was shut down after some people protested and there was police firing, which could have been prevented through proper intelligence gathering beforehand. From copper-exporter status, India became an importer of copper at a huge cost to the exchequer. Instead of rushing through a closure order on that plant, the government could have constituted a team of medical experts to examine the NGO allegation that the plant emissions caused cancer. They can still do that. Taking corrective measures, even if late, could restore investor confidence; preventing such hasty and ill-conceived closure decisions will improve the ease-of-doing-business index and consequently the inflow of big investments.

The CM could also make special efforts to build cordial relations with the Central government, as that will ease the flow of normal funds to Tamil Nadu.

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