The budget document reveals a lot about an organisation — how efficiently it can run its operations and whether it is creating the necessary capacities and capabilities for sustained growth. We subject the Union budget to rigorous examination, but we focus too little on State budgets. Cooperative federalism has led to higher devolution of funds now to States, with the consequent shifting of responsibilities for efficient spending on critical social programmes and for creating the necessary infrastructure.

Plus and minus

State budgets are divided into two areas: revenue and capital. Consistently over the years, State budgets have had deficits on revenue account and are able to meet fiscal prudence regulations by having a surplus on capital account. For the year 2017-18, the budget provided for a revenue deficit of ₹15,930 crore, and a capital surplus of ₹14,157 crore, with the net deficit at ₹1,773 crore. Due to a surplus on capital account, the overall fiscal deficit was maintained at ₹41,977 crore, working out to 3 per cent of GSDP as mandated. The current share of Tamil Nadu in India’s GDP is about 8 per cent, making it one of the leaders. The question is whether Tamil Nadu can continue to be a leading State with this type of financial management?

We looked at both the inflows and outflows in the revenue budget. There is a potential bonanza that may come to the help of the State in its revenues from GST as it is not just a manufacturing but also a major consuming State. However, the gains from this will be taken away from the impact of the Seventh Pay Commission which is expected to be of the order of ₹14,719 crore. Tamil Nadu has to move towards the elimination of revenue deficit and that can come about mainly by improving revenue inflow.

We would argue that the State needs to look at the efficient functioning of its State enterprises, whether it is providing utilities to citizens — water, electricity and transport — or monetising its assets such as land and minerals. Public sector undertakings, including transport, as well as statutory boards, which includes metro water, electricity and housing, continue to incur losses. We agree that these utilities should be affordable to the common man. However, even the well-to-do enjoy the highly subsidised utility. The outcome is that the board or corporation neglects maintenance and capacity addition. These corporations should be made accountable for financial targets and the State should fix dividend targets in case of purely commercial undertakings.

Leadership role

Tamil Nadu has an enviable record as a leader in certain industrial and service segments. We now should aim for leadership position in the new-age industries and in distributing the benefit across the State, not just to a few large cities. Tamil Nadu Vision 2023 sets out the areas and defines the priorities for spending. We would like Tamil Nadu to leverage the extensive broadband penetration and support entrepreneurs in taking knowledge-based industries to smaller towns. Support to startups through the creation of an incubation and entrepreneurship ecosystem even in small towns will lead to inclusive development.

We should also spend on improving the education and healthcare sectors. The State should aim to support “signature projects” projecting Tamil Nadu in a new light, not just as the best place in which to do business but also as a State which supports innovation. The Government and the private sector should find ways of working together for better development. Tamil Nadu created the necessary enabling institutions for identifying PPP projects and we need to take this further. PPP need not stop with certain infrastructure projects or outsourcing some service areas. They can extend to sectors with delivery issues. Why cant private schools with án excellent track record take over corporation schools and be made accountable for improving learning outcomes? We should take innovative steps to improve productivity and enhance skills.

Tamil Nadu is currently placed 12th in ‘ease of doing business’ among States. While we need to eliminate a bureaucratic attitude and adopt policies for an industry friendly environment, we should also spend more on the enablers. Capital should not get pumped into neutralising the revenue deficit. We must create an architecture for better financial management and for supporting new growth drivers.

Mahalingam is chairman of economic affairs and GST sub-committee of CII Southern Region; Majeed is a partner at PriceWaterhouse

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