Tamil Nadu’s finances were under stress yet again in 2021. While the revenue collection showed improvement, expenditure remained on the higher side.
The DMK government, which assumed office in May, released a White Paper on State’s finances which showed that the fiscal position was in dire straits because of structural flaws in governance.
The revised budget for 2021-22 presented in August has estimated Tamil Nadu’s fiscal deficit at ₹92,529.43 crore, excluding ₹8,095 crore to be received as back to back loan from the Centre towards GST compensation. Fiscal deficit is the difference between total revenue and expenditure.
Excluding the GST compensation for 2020-21 and 2021-22, the State’s outstanding debt is projected to be ₹5.77 lakh crore as on March 31, 2022.
The revenue deficit for 2021-22 is projected at ₹58,692.68 crore, much higher than ₹41,417.30 crore projected in the interim budget presented by the outgoing AIADMK government. Revenue deficit is the difference between the government’s revenue receipts and revenue expenditure and reflects that the government’s earnings were not adequate to meet its day-to-day operational expenses such as salaries and interest payments.
CAG figures
According to unaudited provisional figures from the Comptroller and Auditor-General (CAG), the State’s total receipts (including the State’s Own Tax Revenue and the share of Central Taxes, among others, and excluding borrowings) was ₹85,452.77 crore in April-September 2021, up 26.2% from ₹67,707.63 crore in the comparable period last year. The State’s Own Tax Revenue (SOTR), which accounts for 70% of the total revenue, increased by 36.35% to ₹50,324.31 crore in the first half of 2021-22 from ₹36,907.46 crore in the first half of 2020-21.
Stamps and registration fees, State GST, taxes on sales and trade (including the tax on petroleum products and sales tax on liquor), land revenue and excise duties are the components of SOTR.
According to the Reserve Bank of India, tax collections had exhibited a strong growth across States and reached the pre-pandemic levels in the first half of 2021-22.
Despite recovery in revenue, expenditure continued to be at elevated levels. The figure rose to about ₹1.07 lakh crore in the first half of 2021-22 from ₹98,913.22 crore.
Tamil Nadu had incurred an additional expenditure of ₹17,618.8 crore on account of COVID-19 relief this year. Recently, the State government announced an increase in dearness allowance for the State government staff, teachers and pensioners which would cost it an additional expenditure of ₹8,724 crore a year.
The State is expected to spend 66% of its revenue receipts on payment of salaries, interest and pension in 2021-22, which is higher than average of all states at about 55%.
Till October 2021, the State’s fiscal deficit stands at ₹28,108.69 crore and revenue deficit is at ₹10,126 crore for 2021-22.
Finance Minister Palanivel Thiaga Rajan has said the State government would reduce its revenue deficit during 2021-22 and has pitched for data-centric governance approach for better targeting of subsidies and measures to plug revenue leaks.
The White Paper has hinted about structural reforms to fix the flaws in the finances. The State Budget to be presented next year would be keenly watched for reform measures and how the DMK government fulfils its poll promises, key among them is providing ₹1,000 a month for women home-makers.
Any severe impact from Omicron variant would add to the financial stress.
