It augurs well that the Tamil Nadu government has chosen to bring out a White Paper, explaining clearly the health of the State’s exchequer. The State Finance Minister, Palanivel Thiaga Rajan, must be commended for preparing the paper and patiently explaining the contents to the media.
Now, some key questions crop up for consideration: How good or otherwise is the State’s finances? How were they handled in the past?
The answer is clear. Financial management in the past has ignored all canons of fiscal management; public debt has risen to an astronomical ₹6.85-lakh crore as on March 2021; there’s been a continuous erosion in revenue receipts; revenue expenditure was met through borrowings — an unhealthy practice; public investment declined, thanks to the erosion in capital expenditure; and the performance of public sector undertakings has been distressing.
Now, what are the measures to be adopted to bring about a balance between receipt and expenditure? Will adhering to the norms prescribed in the FRBM (Fiscal Responsibility and Budget Management) Act help? Apparently, this is going to be a challenging task, because in the federal set-up of State versus Union, the fund-raising avenues for a State are limited, thus necessitating recourse to Finance Commission awards and statutory grants. The introduction of GST has further worsened the health of State finances.
Against this background, the following policy steps are suggested.
An astute statesman knows pretty well when to administer health-promoting but bitter pills and when to offer sweeteners. The time is ripe for the State government to take hard decisions. The scope for setting tax rates is practically nil since all the State-level levies are indirect in nature and, therefore, regressive. The common man should not be made to shoulder a heavier burden.
When the Covid pandemic eases, tax revenue could become buoyant. Entertainment tax and the restaurant, hotel and tourism sectors are likely to pick up. Therefore, shortfall in revenue receipts may be made good to an extent.
However, since the problem is of a structural nature, serious remedial measures have to be examined. There is ample scope for expenditure control: not through expenditure reduction but by expenditure switching. To reduce wasteful expenditure, departments which have become redundant over time could be terminated and their manpower used in other areas of development.
The savings from the use of technology should be used to improve the health and education sectors. Instead of thinly distributing welfare measures indiscriminately over a wider area, efforts — physical and financial — must target groups in remote and inaccessible areas.
It is time to reduce indiscriminate use of subsidies and freebies. There may be resistance to this initially, as the system has been long used to ‘all free and free for all’. The supply of free power to farmers is a big drain on the electricity board and ultimately on the government’s finances.
It is a known fact that farmers who enjoy free power generally sell it at ₹50-100 per hour to neighbours who do not get concession. The State cannot be a mute witness to such open theft. There is a need to narrow the gap between the farm-gate price for agricultural products (both perishable and durable) and the market price (which the consumer pays). Policies must be formulated on the basis of empirical evidence and behavioural economics.
The solution to the problem on un-remunerative prices lies not in subsidising inputs like power but in strengthening the marketing infrastructure to enable the farmers store their produce and release them when it is profitable.
Regulated markets, farmer-producer company and uzhavar sandhais apart, there’s a need to initiate works towards processing and storing facilities on a large scale. There are many issues of similar nature in fields like health, education, transport, etc.
Policy decisions should be anchored on the basis of empirical evidences which behavioural economics teaches and not on the basis of hunches. Research and educational institutions in the State that receive hefty financial assistance from the government should be encouraged to take up empirical studies on a continuous basis on the need, quantum and cost of public goods like power supply, free rations, free transport, etc.
Universal pension: Adoption of a policy of universal pension could help avoid most of the subsidies and freebies. The aged poor should receive self-support through pension. A person is poor because he/she does not possess an asset which will give returns, nor the skill for which there is demand.
Hence, one important welfare measure must be old-age pension to all the needy, even if it be a costly exercise, with the eligibility age being 70 and a small amount of ₹2,000 per month to start with.
Effectiveness of public expenditure can be vastly improved by the government adopting a project approach for its schemes. A project must have a specific starting point and end-point, clear delineation of cost and benefit streams over time, adopting shadow pricing and achieving the expected returns.
This will result in cost minimisation and benefit maximisation. Every department should have a small cell with expertise to carry this out. This can help attract good flow of funding from international agencies.
Exports are an income/employment generating. Export promotion at the national level is mostly done through subsidisation. Tamil Nadu should go a step further in identifying product-wise and location-wise areas for taking concentrated efforts towards improving cost and quality issues.
Health and education are two pillars on which development could be built up. Government hospitals have good and modern equipment but the utilisation rate is poor. Proper utilisation and spreading out the facilities to un-served locales will enhance development.
A tendency to switch children from private schools to government schools noticed recently is an aberration, caused by people stuck in poverty due the spread of coronavirus.
The quality of education imparted in government schools has to improve a lot. Malpractices in teacher recruitment is one of the causes for the poor quality.
The helping hand of right education and good healthcare offered by many religious groups and institutions should be availed of by the government, and thus reduce its own capital expenditure.
Transparency: The Chief Minister frequently underscores the word transparency in government dealings. A laudable, but rarely practised maxim. Transparency is a powerful weapon — an effective shield to keep the opponents at bay and also a powerful sword to be wielded if occasions demand.
If transparency is practised, Tamil Nadu will become a model for other States to emulate. Attracting technology, skill, and capital will be the bonus.
The writer is a former State Planning Commission Member