Ratings firm Crisil has revised its rating outlook on bond programmes of Tamil Nadu government’s power firms to negative from stable, citing increasing pressure on state finances due to the widening revenue deficit.
The Tamil Nadu Electricity Board (TNEB) and the Tamil Nadu Generation and Distribution Corporation Ltd (TANGEDCO) receive major financial support from the Tamil Nadu government. The State has been hit by lower tax collections over the last four years.
The State’s own taxes as a percentage of gross state domestic product (GSDP) declined to 7.9 per cent in fiscal 2016 from 8.7 per cent in fiscal 2014, mainly on account of the fall in crude oil prices, which impacted value-added tax (VAT) collections from petroleum products, according to Crisil.
The firm also expects tax collections in fiscal 2017 to be marginally impacted by the move towards closure of several TASMAC liquor shops. “Stickiness in committed expenditure and continuing high subsidy support, including to TANGEDCO, in the absence of regular tariff hikes, free power up to 100 units and other such measures would put pressure on revenue deficit,” it said. Revenue deficit/revenue receipts ratio for Tamil Nadu has increased to over 10 per cent in fiscal 2017 from 1.7 per cent in fiscal 2014, due to subdued own-tax collections and high subsidy outflows.
Gross fiscal deficit
The widening revenue deficit has impacted the government’s gross fiscal deficit, which is at 2.8 per cent of the Gross State Domestic Product in fiscal 2016. The gross fiscal deficit is close to the limit prescribed in the Fiscal Responsibility and Budget Management limit of 3 per cent. Crisil points out that further widening of fiscal deficit would limit the state’s borrowing flexibility. “The fiscal position over the medium term will also remain contingent upon potential implementation of pay revisions under the recommendations of the state's pay commission and impact on own tax collections under the Goods & Services (GST) regime.” The firm reaffirmed the ratings of the bond programmes of TNEB and TANGEDCO at A(SO).
“The rating continues to reflect the benefits the Tamil Nadu government derives from its favourable Gross State Domestic Product composition and superior socio-economic indicators. These strengths are partially offset by sizeable committed expenditure and an average fiscal position,” it said.
