The Hindu Business Line : Fiscal plan stress on rightsizing TN Govt — `Cutting down salary, pension expenditure critical'

The Tamil Nadu Chief Minister, Ms Jayalalithaa, with the Finance Minister, Mr C. Ponnaiyan, who is on his way to present the State's budget for 2004-05 in Chennai on Wednesday. Also seen are the Chief Secretary, Ms Lakshmi Pranesh, and the Finance Secretary, Mr N. Narayanan. - Bijoy Ghosh

Chennai , Feb. 11

THE Tamil Nadu Government feels reining in expenditure on salaries and pensions is critical if the State is to achieve fiscal correction and reduce revenue deficit to below 5 per cent of total revenue receipts by 2007-08, as part of its medium-term fiscal plan.

At present, expenditure on salaries is 39.03 per cent of total revenue receipts in the 2003-04 revised estimates or 55.95 per cent of the State's own tax revenues. The outgo on pensions is 15.91 per cent of total revenue receipts or 22.80 per cent of the State's own tax revenues.

According to the medium-term fiscal plan, tabled as part of the 2004-05 budget by the Finance Minister, Mr C. Ponnaiyan, in the Assembly today, the plan's goal is to reduce the incidence of salaries to 31.58 per cent of total revenue receipts by 2008-09 or to 43.99 per cent of the State's own tax revenues. Rightsizing the Government is an integral part of the medium-term fiscal plan. This will be accomplished by not filling up vacancies except in certain essential categories and maintaining strict control over creation of new posts.

The medium-term fiscal plan seeks to achieve a sustainable level of public finances with focus on building new infrastructure, maintaining assets and protecting the poor. The fiscal correction programme will consist of reducing revenue deficit and increasing capital expenditure.

Mr Ponnaiyan said the possibilities of accelerated exit of employees on their own could also be explored. Restraint in total emoluments with reference to market rates for comparable categories was also predicted to restore fiscal balance.

He said the expenditure on pensions was not sustainable in the context of the revenue deficit. Estimation of the retirement profiles indicated that there would be further stress on account of the outgo of pensions. Some changes had been made, including introducing a defined contributory pension fund from April 1, 2003. The Government would strive to resolve issues over some parametric changes it had tried to introduce. Cost of living indexation alone would be provided in future and improvements to pensions of previous retirees would not be entertained.

The outgo on pensions was expected to go up from 15.91 per cent of total revenue receipts in 2003-04 and stabilise at 18.01 per cent by 2008-09. As a percentage of the State's own tax revenues, it was likely to move up from 22.80 in 2003-04 and stabilise at 25.09 by 2008-09.

"While the total outgo continues to be high and is responsible for the slowness of the fiscal adjustment process there is not much more which can be done in the medium term," the Minister said.

The Government would adopt a two-pronged approach to tackle interest burden, which was another key expenditure item. One would be to retire high cost debt or get the interest rate on existing debt re-set and the other would be to limit new borrowings consistent with growth. The sustainability of debt would be constantly monitored. The interest burden as a percentage of total revenue receipts edged up from 12.2 in 1995-96 to 19.84 in 2002-03. The medium-term plan sought to slow it down and stabilise it at 22 per cent before moving southwards.

The medium-term fiscal plan, outlined as part of the Tamil Nadu Fiscal Responsibility Act, 2003, seeks to: reduce revenue deficit to below 5 per cent of total revenue receipts by 2007-08 and to make the State revenue surplus by 2008-09; bring down fiscal deficit to below 3 per cent of the Gross State Domestic Product (GSDP) by 2007-08; reduce revenue deficit to below 35 per cent of fiscal deficit by 2006-07; cap outstanding guarantees to a level below 100 per cent of the total revenue receipt in the preceding year or at 10 per cent of the GSDP. The plan seeks to ensure that resource allocations in the budget are towards development and growth-oriented sectors. It also aims to ensure that public utilities are self-sufficient.

Mr Ponnaiyan said the success of the plan depended on compressing expenditure with a focus on quickly reducing unproductive expenditure. An expenditure review committee would be constituted to review on an on-going basis the expenditure in respect of each department.

He said the medium-term fiscal plan would reallocate scarce resources to priority sectors. Also, capital outlay, which was almost stagnant, will increase from Rs 1,627.54 crore in 2002-03 to Rs 5,050.14 crore in 2008-09. With this, the capital expenditure as a percentage of total expenditure would increase from 5.96 in 2002-03 to 12.64 in 2008-09. The allocation for non-wage operation and maintenance would be stepped up from 7.8 per cent of total revenue expenditure in 2001-02 to 10.6 per cent in 2008-09.