Coronavirus lockdown and the state of State finances

Coronavirus | Pandemic jolts prudent Tamil Nadu’s calculations

A health worker inside a protective chamber lifts nasal swab sample from a person in Chennai. File   | Photo Credit: B. Jothi Ramalingam

For a State that gets around 60% of its funds from its own tax revenue, the lockdown has been harsh on Tamil Nadu.

Also read: Coronavirus | TN Cabinet issues guidelines for lockdown after May 3

Going by a general yardstick, the State’s own tax revenue (SOTR) yields an average ₹10,000 crore a month. “Of this, we may realise a mere 10% or a maximum of 20% in April, the first full month after the imposition of the country-wide lockdown since March 25,” says an official of the State Finance Department.

A ban on alcohol and the slump in the sale of petroleum products in particular have hit finances hard as the two components account for nearly 50% of the SOTR.

No registrations

The contribution through two other components — registration of vehicles and immoveable properties — has been virtually nil. The property registration was allowed to resume a few weeks ago but the response has been tepid.

Also read: Coronavirus | Ease lockdown in phases, public health experts tell Tamil Nadu

The woes have been compounded by the Centre’s announcement that the contributions to the Chief Minister’s Relief Fund of States would not qualify to be treated under the Corporate Social Responsibility (CSR) expenditure for COVID-19.

Massive relief package

Even as it is struggling to earn a modest share of its budgeted revenue, the Tamil Nadu government has gone ahead with the implementation of a relief package of ₹3,280 crore for people hit by the impact of the COVID-19. Besides, migrant workers and workers in the unorganised sector, including autorickshaw drivers, are being given monetary and material support. Simultaneously, the State has been investing in putting in place the required health infrastructure.

Coronavirus | Pandemic jolts prudent Tamil Nadu’s calculations

All these have left the State government with only two options — borrowing and getting as much funds as possible from the Central government.

“We have already borrowed ₹ 8,000 crore in the last one month,” said the official.

For the current year, the government’s original plan, formulated during the pre COVID-19 period, was to borrow about ₹83,350 crore, keeping the net borrowing well within the permissible limit at around ₹59,209 crore.

Plea to hike limits

But post the outbreak, Tamil Nadu, whose general track record is one of sticking to stipulated fiscal indicators and not availing of the ways and means advances (WMA) from the RBI despite posting a revenue deficit, has been pressing the Centre to increase the fiscal deficit limit of 3% of the Gross State Domestic Product to 4.5% for 2020-21. It has urged the Centre to allow it this year to go for additional borrowing of 33% above the previous year’s level. Apart from demanding that the recently enhanced WMA limit be doubled, Tamil Nadu has suggested that this year’s advances be made interest-free.

Coronavirus | Pandemic jolts prudent Tamil Nadu’s calculations

Besides, the State has also requested the Union government to immediately release 50% of grants recommended by the 15th Finance Commission for local bodies; a special grant of ₹1lakh crore for all States, including ₹9,000 crore for Tamil Nadu; ₹3,000 crore for the augmentation and strengthening of health infrastructure; ₹1,321 crore towards custom milled rice subsidy for paddy procurement and an ad-hoc grant of ₹1,000 crore from the National Disaster Response Fund (NDRF) to procure medical and protective material.

Even though the State’s needs and expenditure are increasing, the nearly ₹6,420 crore released by New Delhi for a host of purposes has come as a breather. The amount includes the first instalment of the State’s share in Central pool of taxes (₹1,928.56 crore) and that of revenue deficit grant (₹402.5 crore); GST compensation for December 2019 -January 2020 of ₹1,369 crore, apart from ₹510 crore from the State Disaster Response Fund and ₹312 crore under the National Rural Health Mission.

Veteran policy makers say that given the sweep and nature of the COVID-19, the Centre should declare it a “national disaster” and liberally assist the States through the NDRF also.

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Printable version | Oct 23, 2021 2:12:23 PM |

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