The DMK’s electoral promise of providing ₹1,000 a month and the AIADMK’s of giving ₹1,500 a month, along with six cooking gas cylinders, to housewives have raised the question of the feasibility of such proposals, considering the fiscal situation of Tamil Nadu.
As the two parties have considered the size of the beneficiaries based on the approximately 2 crore rice-drawing ration cards in the State, the AIADMK’s dole would mean an expenditure of ₹46,000 crore a year and ₹24,000 crore a year for the DMK. (For the purpose of this calculation, the cost of a cooking gas [liquefied petroleum gas] cylinder has been taken as ₹825).
More announcements
The two principal parties, known for their competitive populism, are expected to come out with more announcements as the Assembly election draws closer. As the State government, in early February, came out with a waiver scheme for crop loans taken from cooperative institutions, further promises in this area may cover the loans taken from commercial banks. Assuming that around 30 lakh farmers have taken loans and if the ceiling is fixed at ₹1 lakh, the cost would be ₹30,000 crore.
The DMK has already spoken about the waiver of educational loans, whose outstanding amount is estimated to be about ₹14,000 crore.
Asked if the new proposals would replace the existing schemes and freebies, a key member of the AIADMK’s manifesto drafting committee said they would be in addition to what was already being provided by the government.
When reminded of the Election Commission of India’s (EC) guidelines that manifestos should reflect the rationale behind such promises and broadly indicate the means to meet the financial requirements for it, he said resources would be found for the new schemes, just as they were being done for the current set of measures.
The subsidy bill of the State government in 2019-20 was about ₹20,144 crore. It is bound to be much more this year due to the impact of the pandemic.
An example of this is the few rounds of cash support that were provided along with essential commodities through the public distribution system (PDS) free of cost for three months.
If one is to add the cost of the new proposals with that of the existing subsidy bill, the overall figure may touch a minimum of ₹88,000 crore and a maximum of ₹1.2 lakh crore, which would be 33% to 46% of the revenue expenditure. For the year 2021-22, as per the budget estimate, the revenue expenditure is around ₹ 2.6 lakh crore. If one adds salaries and pensions to that, the government would be left with little money for any development expenditure, veteran civil servants said.
A perusal of the medium-term fiscal plan, tabled on the floor of the Assembly last month, did not reveal a rosy picture with regard to key fiscal parameters. As per the Budget estimates for 2020-21, interest payments alone are expected to be nearly one-fifth (19.67%) of the total revenue receipts against the ideal 12%. Revenue deficit is likely to be substantial at around ₹41,417 crore and the fiscal deficit over the Gross State Domestic Product (GSDP), 3.49% against the ideal 3%.
K.R. Shanmugam, Director of the Madras School Economics, said the proposals reminded him of the situation that Tamil Nadu faced in the 1980s and 90s when subsidies accounted for a huge share in the revenue expenditure. If there is corresponding economic growth, the government would get more revenue and in that case, additional subsidies can be absorbed by the State.
N.R. Bhanumurthy, Vice-Chancellor of the Bengaluru Dr. B.R. Ambedkar School of Economics University, emphasised that Tamil Nadu, which is way ahead of others in the area of welfare measures, had to strike a balance between welfare and development.
