Tamil Nadu Budget: do the numbers justify the freebies?

R Srinivasan | Updated on March 27, 2015 Published on March 27, 2015

Year after year, TN has estimated its earnings higher, and its expenses lower, than actual

In a close to ₹11 lakh-crore economy, spending ₹5,300 crore on distributing colour televisions, laptops and kitchen appliances to future voters might seem like an unfortunate, but affordable expense.

The Tamil Nadu Budget for 2015-16 attracted more comment and attention for this single item of expenditure, which fulfils an electoral promise of the ruling AIADMK government, than the overall picture of the State’s financial health as presented in the document.

But the real problem with this Budget lies elsewhere — in numbers which have been glossed over with “global slowdown” explanations.

Despite a continuous slowdown in tax collections the projected revenue receipts are ₹1,42,681.33 crore, a growth of over 7.7 per cent over the estimate made in the previous year.

This is par for the course, since year after year, the State has estimated its earnings higher, and its expenses lower, than actual.

The reality is this: Tamil Nadu’s Own Tax Revenue — what it raises by way of taxes locally — is ₹85,772.71 crore as per the revised estimates for 2014-2015. This is estimated to increase to ₹96,083.14 crore in 2015-2016. This sounds good, but the earlier projection for 2014-15 was ₹101,557.18 crore!

Ditto, on the expenditure side. The actual Revenue Expenditure is estimated at ₹1,47,297.35 crore, leaving a Revenue Deficit of ₹4,616.02 crore for 2015-16. This is a marked deterioration from the revenue surplus of ₹1,364 crore achieved as late as in 2011-12.

Where is this money going? Mostly on subsidies, salaries and pensions and other non-productive stuff. The State government has planned to spend a whopping 56 per cent of its own revenues — and over 41 per cent of its total revenues, which include Central transfers and grants — on subsidies and freebies.

At ₹59,185 crore, the outlay on subsidies and giveaways dwarfs the ₹27,213.17 crore capital outlay budgeted for the upcoming fiscal. This too is optimistic, since, like in the past, actual capital expense in 2014-15, at ₹23,808.96 crore, was almost 10 per cent shy of the earlier projection made in the medium-term fiscal plan.

Power pull

Electricity is biting a big chunk out of the subsidy outgo. The first tariff hike after seven years was effected in 2012-13, after the State-owned power generation and distribution utility Tangedco had accumulated losses of a staggering ₹59,000 crore.

After a State-led rescue plan led to Tangedco’s restructuring, with the State government absorbing most of the losses and half its restructured loans, one would have thought that the era of freebies would have ended.

But this year too, Chief Minister O Panneerselvam announced that the government had taken the “people friendly measure” of absorbing the recent power tariff hike for bi-monthly domestic consumption up to 500 units.

A total financial support of ₹13,586 crore is provided for the power sector in this Budget, of which Tangedco alone will get ₹11,748 crore.

Over the past three years, the Tamil Nadu government has spent more on power subsidy — and its generation/distribution utility — than any other State government in India.

Although the huge demand-supply mismatch which existed two years ago has been more or less bridged, it has come at a cost the State can ill afford.

Tamil Nadu presents a study in contrasts. On overall social development indicators, particularly relating to primary education and health, it is one of the best performing States in the country, which would tend to support the subsidies and social spending approach of the government.

Fiscal deficit

At a gross level, too, the fiscal numbers are not bad. The fiscal deficit is estimated to be 2.89 per cent of Gross State Domestic Product (GSDP) as against the norm of 3 per cent and the Debt-GSDP ratio 19.23 per cent, which is well below the 25 per cent cap recommended by the Finance Commission.

But these numbers, given the slowdown in tax revenues and the sharp deceleration in investments, are likely to be unsustainable in the long term.

Published on March 27, 2015
This article is closed for comments.
Please Email the Editor