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N. Ramakrishnan

Salaries and pension together account for as much as 94 per cent of the State's own tax revenues, while it is more than 50 per cent of the total revenue expenditure of the Government.

CHENNAI, Feb. 9

WITH a series of measures aimed at curbing expenditure being implemented, the Tamil Nadu Government is set to tighten its belt further and continue with fiscal reforms as it prepares itself for the 2003-04 Budget that will be presented some time in March.

A serious scrutiny of the pension and retirement benefits offered to its former employees, a bill that has been growing at the rate of 30 per cent annually over the last five years, is on cards.

Expert views suggest that the Government should take a re-look at the method of pension payment, as the present system is totally non-sustainable, according to sources.

From about Rs 65 crore in 1984, the pension commitments of the Government grew to Rs 2,927 crore in 2000-01. For this year, the Government has provided for about Rs 3,200 crore in the Budget.

Salaries and pension together account for as much as 94 per cent of the State's own tax revenues, while it is more than 50 per cent of the total revenue expenditure of the Government.

According to reliable sources, with more employees due to retire, the pension and retirement benefits bill of the Government is only set to jump further, making some cuts in pension costs inevitable.

The measures could include curtailing the entitlements of future recruits who will be covered by a totally different pension payment regime. Besides, some roll back on entitlements and some partial deferment of lumpsum benefits are also inevitable, it is pointed out.

At present, a minimum qualifying service of 10 years is necessary for retired Government employees to be eligible for receiving pension. The pension is calculated at 50 per cent of the last drawn pay. For qualifying service of 30 years, full pension is paid. The minimum pension with effect from January 1996 is Rs 1,275.

According to the White Paper on the State's finances, tabled in the Assembly in August 2001, the rapid growth of expenditure on salaries, allowances and pensions in the last three years is the consequence of implementing the recommendations of the Central Fifth Pay Commission.

The Chief Minister, Ms J. Jayalalithaa, in a speech at a meeting of chief ministers on the fiscal situation of States, in October 2002, had pointed out that Tamil Nadu's pension liabilities had more than trebled in the 1997-98 to 2001-02 period, and said the issue was how to slow down the annual growth rate of pensions to less than 10 per cent.

According to the sources, the focus of the Government's financial management is now on controlling fiscal deficit. Therefore, the 2003-04 Budget will keep in mind the need to address three crucial parameters — revenue deficit as a percentage of total revenue receipts, fiscal deficit as a percentage of Gross State Domestic Product, and debt service as a percentage of total revenue receipts.

While the AIADMK Government did take some steps such as hike in power tariff and increase in bus fares to address the poor finances, it was only in the latter part of 2002 that it really came to grips with the gravity of the problem.

The Jayalalitha Government realised then that what was needed was not a mere tinkering with user charges, but a serious effort to address a much more deep-seated problem.

A course correction was needed on all the three critical parameters what with the revenue deficit as a percentage of total revenue receipts having to be brought down to a level of zero by 2005, as per Government of India guidelines; fiscal deficit as a percentage of GSDP was around 4.5-5, whereas a more comfortable level would be 2.5-3; and, debt service as a percentage of total revenue receipts was above 20, while a more sustainable and comfortable level would be 12-15 per cent.

To achieve a course correction, according to the experts, the Government had two options — tackle revenue receipts or revenue expenditure. As Tamil Nadu was already a highly taxed State — tax GDP ratio being more than nine per cent — the Government had to necessarily address revenue expenditure.

The food subsidy bill, which was about Rs 1,600 crore annually, was among the issues that had to be tackled, according to the sources. It was with this in mind that the Government increased the price of rice in the PDS for the second 10 kg of the 20 kg that a cardholder was entitled to.

Simultaneously, the procurement formula was changed because of which the State was able to get more rice out of the Central pool at much lower cost. The net effect this year will be a Rs 200-crore in the food subsidy bill, but for the next year, the subsidy bill is expected to halve to about Rs 800 crore — considered a more manageable figure.

Besides, the Government also had a re-look at salaries and emoluments. These included surrendering leave encashment, saying no to bonus payment, and dearness allowance paid with a lag. These, according to the sources, helped to tighten the belt further. The Government also converted certain scheme outlays like the free dhoti/sari scheme into a market scheme.

According to the sources, with the focus on eliminating non-priority expenditure, the Government will just about be able to manage the fiscal situation in 2002-03. The situation is not as yet comfortable, but with these expenditure-control measures being continued in the next year too, the situation should hopefully be much better at the end of the next financial year. It is pointed out that it is only with artificial compression of expenditure that the revenue deficit as a percentage of total revenues will be controlled this year. However, with the State planning to take on its books about Rs 1,900 crore of receivables of Central power utilities, the debt position will appear skewed.

With revenue deficit, fiscal deficit and debt service burden continuing to be high, it is pointed out that the Government will have to resort to tough measures in the 2003-04 Budget.

The Government is even expected to access the multi-lateral lending agencies for assistance under the structural adjustment facility and at the same time go for large-scale restructuring of State-owned enterprises.

The Government is set to exit all kinds of manufacturing activities — both in the State sector and the cooperative sector, which includes the sugar mills and spinning mills — as it will sell its stake in PSUs, on the lines of the Government of India policy on disinvestment, and wind up other enterprises that cannot be nursed back to health, according to the sources.

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