Southern States - Tamil Nadu   

Pension allocation eating into revenue

By R.K. Radhakrishnan

CHENNAI NOV. 11. The Government's pension bill is growing at an alarming rate and shows no signs of plateauing off as more and more join the ranks of senior citizens in the State.

Actually, this year and the next (2003-04 and 2004-05), the number of those who retire from the Government service will be much higher than that in the previous years. "The pension burden is the real problem. Its effect is overpowering all fiscal correction measures. The pension allocation is fiscally unsustainable," says an expert.

Now, the Government spends over 62 per cent of the total revenue receipts on staff salaries and pensions. The salaries account for 43.89 per cent (of the 62.47 per cent), while pensions consume 18.58 per cent. Financial analysts point out that in 1995-96, pensions constituted only 7.42 per cent of the total salary bill.

According to statistics available, the number of government employees in Tamil Nadu is higher than that in Andhra Pradesh (a larger State) and Karnataka. In both these States, the percentage of total revenue receipts spent on staff salaries ranged from 36 to 40.

The present financial managers in the State say the problem had its genesis a few years ago when salaries and pensions were stepped up for all categories — across the board — without a corresponding increase in revenue receipts. To bridge the yawning gap between revenue and expenditure, the easy way out was taken — borrow, to pay even salaries and pensions. Consequently, capital works suffered.

The State is now bracing to keep up with the stated objective of lowering the fiscal deficit, and, at the same time, ensuring that a healthy growth rate is maintained.

The outlay on pensions, the experts say, is one of the many problems to be tackled. But it is also among the most important and there is the option of taking the suggestions which had come from the Union Government.

Finance department officials were fully seized of this vital aspect that created significant problems in keeping up a healthy growth rate even as the pressure mounted on populist projects. The Tamil Nadu Fiscal Responsibility Act, 2003 had set the target of bringing down the revenue deficit to five per cent of the total revenue receipts and the fiscal deficit to 2.5 per cent of the Gross State Domestic Product by 2007.

Currently, as per budget estimates for 2003-2004, the revenue deficit on total revenue receipts is 17.35 per cent and the fiscal deficit 4.07 per cent. According to `the review of trends on receipts and expenditure in relation to the budget 2003-2004,' presented in the Assembly by the Finance Minister, C. Ponnaiyan, the Government hoped to reach the targets set by the financial year 2007-2008. This, provided the direction of fiscal reforms were maintained and if fiscal discipline overwhelmed the pressing need for more populist schemes.

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