TN unveils white paper on state’s rising debt, chronic revenue deficit

SOTR accounted for close to 70% of the total revenue till 2013-14. The proportion of SOTR to total revenue has subsequently declined to 62.82% in 2020-21.

Releasing a white paper on the state’s finances, the DMK-led Tamil Nadu government on Monday lashed out at the previous AIDAMK regime, saying that the worsening budget deficit has made the state over-reliant on debt.

As per the interim budget estimate (IBE) of 2021-22, the overall debt of the state will be ₹5,70,189 crore. Its public debt (excluding the Centre’s debt) as percentage of GSDP is 26.69%, which is above the permitted limit of 25% by the 14th Finance Commission, Palanivel Thiaga Rajan, Tamil Nadu finance minister, told media persons. This effectively means each family in the state is indebted by ₹2,63,976, he said.

He said even as the outstanding debt of the government has been mentioned as Rs 4,85,503 crore as on March 31, 2021 (RE), in the IBE, “if we consider the ‘other means’ of financing the fiscal deficit, the real debt is Rs 5,24,574 crore, which is equal to five year total of fiscal deficits”.

The fiscal deficit financed by ‘other means’ for the period 2016-21 was 12.68% of the total fiscal deficit, and in real numbers it is ₹39,071 crore, the minister said. Particularly in the last three years, amounts drawn from the public account to manage the fiscal deficit have been more than 10% of the fiscal deficit in proportion, the white paper said.

TN’s revenue deficit has been deteriorating for the past eight years. Such a long-term trend has affected capital investments, which in turn has affected growth. In five out of the seven years between 2006-13, TN had a net revenue surplus. However, it has been a chronic revenue deficit state since 2013. The average revenue deficit for all states and Union Territories was 0.1% of GDP in 2019-20 and 2020-21; for Tamil Nadu it was 1.5 % and 1.4 % of GSDP, respectively.

Analysts, however, said the fiscal situation of almost all states and the Centre saw deterioration in recent years due to lower economic growth and reduced revenue buoyancy, and the situation has become graver after the pandemic.

According to the finance minister, the fiscal deficit of the state has been increasing primarily due to the increase in revenue deficit, not increased capital investment. For 2018-19 and 2019-20, fiscal deficit was 2.90% and 3.26%, respectively, of GSDP. The allowed limit as a ratio of GSDP is 3%. The Tamil Nadu government has been breaching this limit continuously for the past eight years, he said.

The outstanding government guarantees for FY2020-21 were ₹91,818 crore. Higher quantum of government guarantees will lead to a low credit rating of the government, which will lead to costlier credit. This is 4.72% of the GSDP, the third highest in the country behind Andhra Pradesh and Telangana, the minister said.

Around 91% the government guarantees of the Tamil Nadu government are on account of power and transport sector borrowings, and the government runs the risk of increasing its debt burden if the PSUs default on repayments.

Total revenue receipts of the state have declined to 8.7% of GSDP in 2020-21 from the peak of 13.35% of GSDP in 2008-09. Subsequently, the state’s own tax revenue (SOTR) has registered a significant decline. Total revenue receipts growth rate has fallen drastically from 11.4% of GSDP in 2006-11 to 3.80% between 2016-19.

SOTR accounted for close to 70% of the total revenue till 2013-14. The proportion of SOTR to total revenue has subsequently declined to 62.82% in 2020-21.

Outlining key focus areas towards recovery, the finance minister said robust measurements and monitoring of the performance metrics will be the priority. The government will encourage participation of all stakeholders in the decision-making process. It will try to reduce the debt burden at the earliest possible instance while unlocking unutilised value potential to increase the revenue in an equitable manner with the least possible coercion.