Jayalalithaa does a reality check as fiscal situation is alarming and PSUs are struggling

The thrust of Chief Minister Jayalalithaa's televised speech on Thursday, outlining her six-month-old government's intention to revise the prices of power, bus tickets and milk, indicated for the first time that populism is slowly giving way to pragmatism in fiscal matters.

After kicking off a slew of initiatives revolving around distribution of free items and arguing spiritedly that concessions given to the poor could not be termed ‘freebies', Ms. Jayalalithaa has done a reality check: the fiscal situation is alarming, and public undertakings are struggling under unsustainable levels of debt.

“While doing a department-wise review, I came to know that the Tamil Nadu Generation and Distribution Corporation, State transport undertakings and other public sector institutions are in danger of reeling under mounting debts and financial travails,” she said.

The multiple hikes she has proposed may invite comparison with the fiscal reform programme she initiated during her earlier 2001 regime, and spark speculation that she may once again embark on a similar initiative. However, anticipating the possible adverse impact that such a perception may have on her government's popularity, Ms. Jayalalithaa has sought to soften the blow by making it clear at the outset that any power tariff revision will not affect the free electricity supply being given to farmers, weavers and hut dwellers. And that government subsidy would continue to take care of the interests of domestic consumers, whose consumption is low.

In 2002, her government had spoken about the danger of the State's financial stability being derailed by mounting commitments in the form of employee compensation, pensions and heavy borrowings. She had then taken up fiscal, budgetary and administrative reforms, including attempts to downsize the government, rationalise subsidies and bring about changes in the public distribution system. However, these measures had come with a heavy price – a steep decline in her government's popularity.

After the ruling AIADMK drew a blank in the 2004 Lok Sabha election, she resorted to an omnibus rollback of most major decisions she had earlier made. Among the reversals was the withdrawal of the power tariff revision made in 2003 and the plan to meter farm pump set connections.

The current revision of bus fares and milk prices, and the planned power tariff revision, is unlikely to go down well either with the political parties or the people.

It is in this context that Ms. Jayalalithaa assailed the Centre's attitude towards the State.

“The Union government is repeatedly raising fuel prices and refusing to extent any special loan facility to the State; it is not ready to part with 1,000 MW of power from the Central pool that we have sought, and the State's debts have crossed Rs.one lakh crore. In this backdrop, who can I approach to keep our public sector undertakings afloat except the people of Tamil Nadu?” she asked.

Ms. Jayalalithaa said she had been hoping for the last six months that the Centre would help to some extent in her efforts to restore the State's financial health. “But the Centre shows a step-motherly attitude and has totally neglected Tamil Nadu.”