TN staring at economic uncertainty

Poor monsoon, fall in agriculture output and demonetisation likely to dent State’s Own Revenues

Tamil Nadu appears to be heading towards a phase of uncertainty in the economic sphere, according to experts. Apart from the failure of this year’s northeast monsoon, the likely adverse effect on agricultural production and the virtual stagnation in the growth of the State’s Own Revenues (SOR), demonetisation will contribute to the situation.

As on December 28, 2016, the State’s deficit in rainfall during the monsoon was 62 per cent. This was confounded by a huge shortfall in the realisation of Cauvery water by Tamil Nadu since June. As a result, the area covered under the long-term samba crop has gone down.

Since 2013-14, the State has not witnessed any substantial increase in the growth rate of SOR. That year, the figure was around Rs. 83,061.38 crore. In 2014-2015, it went up by Rs. 4,000 crore only. In 2015-2016, as per revised estimates, the figure was around Rs. 95,470 crore. For the current year, originally, the government had envisaged netting about Rs. 1.19 lakh crore. However, this was scaled down to around Rs. 1 lakh crore in July, when no one had inkling of the Centre’s move on demonetisation.

N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy, New Delhi, says it has been forecast widely that the demonetisation will lead to a fall in the rate of economic growth at the national and State levels and Tamil Nadu will be no exception.

This coupled with other factors could have a dent in the SOR, which has been a major source of financial support to a number of welfare measures or “freebies” in Tamil Nadu. Also, there have been adverse reports about the State’s industrial climate, which can contribute to the phase of uncertainty.

Cyclical growth

Though K. R. Shanmugam, Director of the Madras School of Economics, acknowledges that the State is facing uncertainty, he says the phase of lower growth is cyclical. Generally, it happens once in five years.

When the monsoons, southwest and northeast, fail, the State’s farm sector is hit badly and this has a bearing on industry too. Naturally, the growth rate goes down.

However, he emphasises that Tamil Nadu has been doing better than many other States with regard to the medium-term growth or long-term growth.

An official in the State Planning Commission concedes that as per a conservative estimate, the SOR will see a 10 per cent fall this year. In absolute terms, the State may lose at least Rs. 10,000 crore this year. The official hopes that in view of the State having larger formal economy with a wide network of banks and ATMs, its ability to migrate to cashless economy will be quicker, and in real effect, the negative impact of the demonetisation is likely to be less for Tamil Nadu, compared to many others.