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One cannot envy the finance minister of Tamil Nadu, Palanivel Thyagarajan — PTR, for short.

We live in troubled times. The halting recovery of the global economy, which was expected to gain momentum with the receding of the Covid pandemic and the restoration of supply chains, was already being hobbled by rising inflation and consequent deflationary measures in a milieu of fiscal fundamentalism and austerity. The Russia-Ukraine war, now nearing three weeks, has thrown a huge spanner in the works, and the global economic scenario provides little comfort for the upcoming budget of Tamil Nadu. The Union budget numbers, not especially credible to begin with, now lie in tatters a month and a half later. The Union government has provided no fiscal stimulus for demand-led growth and supply side factors look gloomy in the new context of rising raw material prices and war-related disruptions.

The Union budget numbers, not especially credible to begin with, now lie in tatters a month and a half later. The Union government has provided no fiscal stimulus for demand-led growth and supply side factors look gloomy in the new context of rising raw material prices and war-related disruptions.

The White Paper (WP) on state finances in Tamil Nadu, released by PTR at a press conference on August 9, 2021 had highlighted the rising revenue deficits (RD) in the budgets of the government of Tamil Nadu. As a percentage of the gross state domestic product (GSDP), RD rose from 0.18% in 2013-14 to 1.95% in 2019-20 and further to 3.16% in 2020-2021.PTR called this situation unsustainable. He had talked of the need for major reforms to bring down the RD and the fiscal deficit(FD).

However, in his first budget presented on August 13, 2021 for what remained of the financial year 2021-22, PTR refrained from major reforms, presumably deferring these for later. More recently, in a media interview, he has returned to the theme of addressing the RD ‘crisis’, and hinted at steps to raise revenues significantly. He has spoken of leakages in commercial tax collection, excise revenue and income from sale of mineral resources, leading to the government “…losing tens of thousands of crores of rupees, with leakages running up to 2-3 per cent of our GSDP..” Improving tax and non-tax revenue collection through more effective administration is certainly desirable, though one must guard against harassment of the small players by over-zealous revenue officials.

There is, however, an underlying thread of fiscal fundamentalism in the White Paper which nowhere questions the rationale of the Fiscal Responsibility and Budget Management (FRBM) Act, so dear to the neoliberals. PTR has also been silent on FRBM.

The WP does not mount a sharp critique of the many moves of the Union government that seek to restrict the fiscal powers of the state governments. It does not foreground the potential and possibilities of joint action with like-minded state governments in improving state finances by reversing some of these moves. It does not call for accountability in evaluating the numerous concessions given to the corporate sector by state and central governments or propose the presentation of a White Paper that can inform the public of the assumed versus actual costs and benefits of incentives to investment by big business. Surely, these concessions have had and will have impacts on the state of state finances! These are aspects worthy of consideration by PTR.

PTR has spoken of revamping and strengthening the Bureau of Public Enterprises in the state with a view to improving the performance of state PSUs. Kerala’s experience is instructive in this regard. The possibility of turning around loss making units in the state public sector through elimination of corruption and clean administration as well as adequate technological and marketing support has been successfully demonstrated by the LDF governments in Kerala. The principle of cross subsidization and the recognition that public sector undertakings cannot be evaluated purely in terms of commercial profitability given their social objectives must also inform the response of the state government when it addresses some of the issues identified in the WP. It may also be noted that there is room for conflict between the so-called ‘Dravidian Model’ recently alluded to by the chief minister of Tamil Nadu and an approach to budget making driven by neoliberal ideology. It is to be hoped that PTR will take this into account in the budget.

There is room for conflict between the so-called ‘Dravidian Model’ recently alluded to by the chief minister of Tamil Nadu and an approach to budget making driven by the White Paper

Ideological considerations aside, there are some urgent imperatives to be taken into account by the budget. The people of the state have gone through harrowing times for over two years on account of the Covid pandemic and the associated devastation in terms of loss of both lives and livelihoods. While the DMK government has certainly been sensitive to this, its efforts to address the issue have been hampered by the approach of the Union government, its denial of resources, its over-centralization of decision making and so on.

  • The budget must focus on employment, including universalization of the urban employment guarantee scheme.
  • It should address the problems of rising raw material prices, working capital, low interest credit, marketing support and wage subsidy as well as infrastructural assistance for the MSME units.
  • MSPs for farm produce as well as investments for improving agri-infrastructure (irrigation, roads, storage) and other support such as expanded direct procurement of farm produce, strengthening of extension and research services and so on.
  • The issues of implementation of the old pension scheme for all government employees, payment of pensions and arrears to employees of state transport undertakings and enhancement of old age pensions are also on the table.
  • Don’t surrender to FRBM restraints imposed on the state. The issues of government debt and revenue deficits should be understood in a larger perspective. If one looks at the numbers in the WP itself, it is only the figures for 2020-2021 (and, to a lesser extent, for 2019-20) that are way out of line with the numbers for earlier years. The debt to GSDP ratio cannot be viewed in isolation nor merely in terms of the letter of the FRBM Act. Ideally resources should be raised from the rich to finance public spending that addresses the needs of the working people who produce the wealth of the country, but receive a relatively small part of it as wages and incomes, and pay sizeable indirect taxes already. However, the state governments are greatly constrained by the nature of the union-state financial relations and hemmed in by restrictive legislations such as the FRBM Act. These realities need to be recognised, but not necessarily surrendered to abjectly. The task of mobilising the people against the unjust and unequal dispensation is also not to be forgotten!

(The writer is an economist and public policy analyst)


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