Online edition of India's National Newspaper
Sunday, August 19, 2001

Front Page | National | Southern States | Other States | International | Opinion | Business | Sport | Entertainment | Miscellaneous | Features | Classifieds | Employment | Index | Home

Southern States | Previous | Next

State's debt position 'alarming'

By V. Jayanth

CHENNAI, AUG. 18 As promised, the AIADMK Government today tabled a White Paper on the State's finances to highlight the fiscal crisis building up and the need for corrective steps to avoid falling into a debt-trap. This has now become a common practice for all newly elected Governments.

The white paper, tabled by the Finance Minister, Mr. C. Ponnaiyan, in the Assembly, paints an alarming picture of the `debt position'.

``Recent years have witnessed a sharp increase in the outstanding debt of the State Government. As on March 31, 2000, the total public debt stood at Rs. 23,840 crores, comprising internal debt of the State Government (Rs. 6,606 crores), loans and advances from Government of India (Rs. 12,385 crores), provident funds (Rs. 4,672 crores) and other deposits (Rs. 177 crores). This is likely to go up to Rs. 29,008 crores as on March 31, 2001'', the paper noted.

The year 1998 has been identified as the crucial point for the downturn in the fiscal status of the State. The then (DMK) Government `impounded' a sum of about Rs. 623 crores due to employees, representing 60 per cent of arrears of pay and allowances, and Rs. 469 crores being 60 per cent of arrears of pension and pensionary benefits payable to those officials who retired from 1996 to 1998, because of the ``poor financial position''. As a result, these liabilities have now been transferred to the financial year 2003-04. This will swell to a staggering Rs. 1,823 crores by that year, after taking into account the interest payable on the arrears, according to the paper.

There appears to be many angles to this problem- revenue expenditure has more than doubled in the last five years; the fifth pay commission has imposed a tremendous liability on State Government, with salaries and pension now accounting for 94 per cent of the State's own tax revenues; a steady decline in the State's share of Central resources and finally the recommendations of the Eleventh Finance Commission.

Apart from dissecting the financial woes of Tamil Nadu, the paper attempts to draw a clear distinction between 1991-1996, when the AIADMK was in power, and 1996-2001, when the DMK ruled the State.

The gross fiscal deficit of the State increased only marginally from Rs. 1,126 crores in 1990-91 to Rs. 1,255 crores in 1995-96, but then ``grew alarmingly to a level of Rs. 5,781 crores in 2000-01''. In absolute terms, the revenue deficit-gap between revenue receipts and revenue expenditure-declined from Rs. 553 crores in 1990-91 to Rs. 311 crores in 1995-96, and then rose sharply in the next five years to Rs. 3,922 crores in 2000- 01.

Cash reserve

According to the paper, the cash reserve with the Government was Rs. 649 crores by the end of 1995-96. But this was `completely depleted' and by 2001-02, commenced not only with nil cash balance, but also with a loan of Rs. 242 crores from the RBI. In addition, there were unpaid cash liabilities of about Rs. 700 crores payable to suppliers, contractors and other agencies implementing Government schemes.

The contribution of the share of Central taxes to the State's revenue receipts has declined from 20 per cent in 1992-93 to 16 per cent in 1999-2000. Successive Finance Commissions appointed by the Centre, denied the State its due share in the devolution of taxes.

In particular, the Eleventh Finance Commission has recommended a reduction in the share of Central taxes for Tamil Nadu from 6.637 per cent to 5.385 per cent compared to the Tenth Finance Commission's award. As a result, the State has to forego a huge amount of Rs. 2,946 crores during the years 2000-05. The share of Central grants to the State revenues has also come down steadily from 12 per cent in 1992-93 to 8 per cent in 1999-2000.

Mr. Ponnaiyan said the objective of the white paper was to apprise the legislators and the people of the extent and causes of the serious financial crisis confronting the State. ``It will also serve to assist the Government in identifying measures to bring the ailing economy and the State finances back on the rails''. The attempt, apparently, will be to evolve a political consensus on fiscal discipline and prepare the people for some hard decisions.

One option hinted at is the Centre's fiscal reforms facility, created with an incentive fund. A sum of Rs. 402.36 crores has been earmarked for Tamil Nadu and it can be availed over the next five years, subject to the condition that the State Government achieves the fiscal objectives identified under the medium term fiscal reforms programme every year.

The question is whether the Tamil Nadu Government is prepared to bite the bullet, adopt those fiscal objectives and implement them without going overboard on populist schemes.

T.N. not in a `debt trap', says Finance Secretary

By Our Special Correspondent

CHENNAI, AUG. 18. Tamil Nadu is not in a ``debt trap'', but the State is anxious that it should not fall into it, the Finance Secretary, Mr. R. Santhanam, said here today.

Briefing the media, he said the Government would take a series of measures to bring down borrowings including reviewing the expenditure of various departments, increasing revenue generation and encouraging small savings.

The white paper on the State's financial position was not aimed at ``giving any shock treatment'', but to present the ``real picture''. In the revised Budget, the estimated revenue receipts was pegged at Rs 20,774 crores, while the revenue expenditure would be Rs. 24,552 crores.

The State Government would press for the revised lignite royalty with retrospective effect from August 1990, which worked to Rs. 590 crores. The Centre had advanced Rs. 250 crores towards royalty for 2001 to 2003.

The State expected the growth rate of commercial tax collection to go up to 13 to 14 per cent from the present 5 per cent, he said.

The new licencing system for IMFL outlets had increased the revenue by Rs. 50 to 60 crores, he added.

To a question, he clarified that there was no proposal to reduce the retirement age of government employees.

He refused to comment on whether the government was considering an increase of power tariff in view of the dismal financial position of the Tamil Nadu Electricity Board.

Send this article to Friends by E-Mail

Section  : Southern States
Previous : Trade, industry hail new proposals, resent tax
Next     : Veeranam lake project within two years

Front Page | National | Southern States | Other States | International | Opinion | Business | Sport | Entertainment | Miscellaneous | Features | Classifieds | Employment | Index | Home

Copyrights © 2001 The Hindu

Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu