A White Paper was not really needed to highlight the obvious — that the state of Tamil Nadu’s finances is precarious and unsustainable. The 122-page document brought out by the DMK government throws light on the gravity of the problem even if it may have been designed to score political points. Revenue deficit at 3.16 per cent of GSDP (till FY13 TN was predominantly revenue surplus), fiscal deficit at 4.43 per cent of GSDP (highest among comparable States), debt burden ₹4.86 lakh crore (TN’s daily interest outgo is ₹180 crore), declining revenue receipts (8.70 per cent of GSDP in FY21 as against 13.5 per cent in FY09) and slowing economic growth (average GDP growth has fallen from 10.15 per cent in FY07-FY11 period to 7.22 per cent now) point to how the State’s finances are on the brink. Even if we grant that the pandemic has had a major impact on finances of most States, the fact is that unbridled populism of successive governments is a major reason for TN’s mess. Take the case of the power utility — TANGEDCO. It incurs a loss of ₹2.36 for every unit of electricity it sells. Still, the power tariffs have not been revised in the last seven years. The State Transport Undertakings incur a loss of ₹59.16 for every kilometre they operate. But they have not been allowed to raise fares. And the newly sworn in DMK government made it worse by allowing women to travel free in normal fare buses.
The White Paper makes all the right noises on the way forward. It rightly points out that business-as-usual cannot continue. A fundamental change in approach is needed to break out of the vicious cycle of debt. And the crisis now is an opportunity to initiate ‘once in a generation’ reforms. The DMK government has the mandate to bring about this change. But will it? Post-GST, the States have very little scope to raise resources. That means, a tight control over expenditure is necessary but in the post-pandemic scenario, the government needs to also increase its spending, both on infrastructure and social support. It will be a tough tightrope walk. Reforms are needed to curb subsidies. The PDS should be cleaned up by dropping the economically well-off from its ambit. Free supply of power to farmers should be reviewed. Separation of feeder lines will help authorities to measure the quantum of agriculture supply and ascertain the extent of genuine transmission and distribution loss. The government also needs to examine the steep price it pays for power purchases. TANGEDCO’s average cost of power at ₹9.06 per unit, in this era of falling power costs, looks ridiculous.
The DMK government has an eminent panel of economists to fall back upon in the Global Economic Advisory Council that it appointed with much fanfare. Well meaning advice is not going to be in short supply. But the question is how much of it will be accepted, especially when it goes against the populist instincts of the party? The upcoming State Budget, on Friday, will be the first test.