The Hindu Business Line : A credible and creditable exercise

THE TAMIL NADU Finance Minister, Mr K. Anbazhagan, presenting the budget... The State has tried to balance fiscal consolidation and welfare improvement, besides facilitating industrial growth and job opportunities.

The Tamil Nadu Budget presented on March 23 by the Finance Minister, Mr K. Anbazhagan, Finance Minister, has been on expected lines, keeping in view the promises made by the Chief Minister, Dr M. Karunanidhi. True to the tradition established by Dr Karunanidhi, the Budget tackles the various problems faced by the Tamil Nadu economy, both in the agricultural and industrial sectors.

The Budget is fully aware of the challenges posed by globalisation, modernisation and advances in information technology.

It does not stint any effort to address the needs of agriculture for modern facilities, as evidenced by the various provisions for improved farm technological services.

Farm indebtedness

The Budget also provides adequately for redressing the grievances of indebted farmers by taking care of the cooperative dues and by reducing the interest rate on cooperative loans. The Finance Minister's speech indicated that the burden of this reduction will be taken up by the Budget itself and adequate provision has been made in this regard over five years.

To what extent this will be sustainable given the rise in interest rate regime in the country and a higher deposit rate that the cooperative banks have to pay for their borrowings is a matter which has to be tackled in the long-run, particularly at the all India level.

Adequate corrections in monetary policy and inflation management are, perhaps, the only route for a benign interest rate regime for the farmers and other borrowers.

It is time to revitalise the cooperative credit structure, without affecting its long-term sustainability, on the lines indicated by the A. Vaidyanathan Committee, to whose recommendations all State governments have indicated acceptance.

To what extent a regime of periodic write-offs will help the growth of a robust cooperative credit structure is worth examining.

Irrigation effort

Keeping in view the importance of agriculture, the Budget has provided adequate funds for the modernisation of irrigation facilities in the various basins with particular reference to the Cauvery delta. As the speech noted, the State is already implementing the irrigated agriculture modernisation and water-body restoration projects. This envisages the follow up of a project for which it has received approval from the World Bank. The Budget states that it is the first of this kind in India.

Under this project, there is hope that the proposed improvement will promote judicious and efficient use of water. Attention is, in particular, drawn to the provision made for introduction of drip irrigation and creation of farm ponds. This is a constructive response to the critical situation posed in the State in the aftermath of the Cauvery Award. Instead of being content with legal remedies, which it is already committed to, the Tamil Nadu Government has shown its resolve to address the various challenges posed by inadequate water release, especially in distressed years. It is to be hoped that the scheme will enable a better utilisation of the water resources released by Karnataka, together with the rainwater resources received in the delta area and now being allowed to drain into the sea because of the terrain.

Industrial focus

The Budget shows evidence of the State rising to the challenges of industrialisation also. It is proposing to increase the training facilities available in the ITIs and in addition setting up new technical institutions of excellence in various parts of the State. It has also announced the modernisation of the employment exchanges with a view to matching the requirements of industries with availability of trained manpower.

There is an indication that the existing ITI facilities will be modernised in consultation with and the cooperation of the industrial units that may need their services. sThe Budget takes care of the digital divide that characterises today's economy. It proposes to increase opportunities for employment in the IT sector more in the rural areas to compensate the uneven expansion in the urban areas. The Budget provides for increased geographic dispersion of software industry. Software parks are to be initiated in various parts of the State.

In addition, the Budget recognises the disadvantages suffered by the rural youth in accessing job opportunities in the software sector, particularly because of their admitted deficiency in English language skills.

It is noteworthy that the Budget has provided for English skill improvement in various schools, including the provision of English language laboratory. Specialised training facilities to enable rural youth to meet the challenges of IT industry's placement interviews are also advisable. This can address the disability faced by the competent but socially disadvantaged rural youth.

As the Budget has noted, the fact that Tamil Nadu is increasingly a destination for IT related industry is a recognition of the fact that skilled manpower is already available within the State. The Budget has spared no efforts in building on this strength, and must be complimented for seizing the opportunity presented by a growing IT sector for enabling a better life, especially for the rural youth, regardless of income levels and/or social status.

Healthy fiscal

Any impression that the Budget has been devoted to give-aways of various sorts and would result in increasing fiscal deficit in disregard of responsibility is resolutely removed by the actual turn out of various fiscal indicators. The medium-term fiscal framework produced in the Budget shows quite a healthy state of fiscal affairs. The fiscal deficit as a percentage of GDP has been brought down in the budget for the year 2007-08 to just 2.81 per cent, which is below the prescribed limit of 3 per cent.

Further, the revenue deficit as a percentage of fiscal deficit is substantially lower and stands at only 0.04 per cent showing the large bulk of the deficit is contributed by capital expenditure and not current expenses. This is a desirable fiscal indicator. Further, the total liabilities of the State as a percentage of GSDP stand at a level of 25 per cent, which is lower than the level of 27 per cent reached in 2004-05. What is significant in the Budget — in view of the generous announcements in regard to liberalization of employee emoluments — is that in spite of these concerns, the salary expenditure as a percentage of total revenue receipts is estimated at only 34.32 per cent.

Contrast this with the claim made by some politicos that the bulk of the revenues is consumed by wages and salaries. It is the nature of State governments that they have large rolls — of number of Government servants - teachers, policemen, doctors, magistrates, etc.

The merit of the Budget is that in spite of liberal wage policies, a prudent limit is kept on the proportion of resources spent thereon.

The non-development expenditure remains at only around 31 per cent of the GSDP, which is below the level of 35 per cent reached in 2005-06. Overall, the fiscal performance of the State deserves to be complimented.

Overall, the Tamil Nadu Budget for 2007-08 is a credible and creditable exercise on fiscal consolidation and welfare improvement, besides making desirable capital outlay on enhancement of infrastructure and essential educational facilities, with a view to improving industrial growth and job opportunities for the youth of the State.

The Budget deserves to be appreciated as an exercise in compassionate policy-making combined with fiscal responsibility and an emphasis on implementation of an innovative plan for the future of the people of Tamil Nadu.