Tamil Nadu Budget 2021

Fiscal deficit breaches 4% of GSDP

The 15th Finance Commission has allowed States to borrow an additional 0.5% if they undertake reforms in power sector.  

The revised Budget for 2021-22 estimated a fiscal deficit (the difference between total revenue and expenditure) of ₹92,529.43 crore, which amounts to 4.33% of the Gross State Domestic Product (GSDP), over and above the 4% ceiling permitted by the 15th Finance Commission for the States. The revised fiscal deficit is also wider than the ₹84,202.39 crore projected in the interim Budget.

A State borrows to fund its fiscal deficit. The 15th Finance Commission has allowed the States to borrow up to 4% of their GSDP for FY22. However, it has allowed the States to borrow additional 0.5%, provided they undertake reforms in the power sector. And one of the reforms is the introduction of direct benefit transfer to all farmers. Now, Tamil Nadu has to undertake the reforms to go for the additional borrowing.

“Though this government opposes the use of Article 293(3) of the Constitution to place conditions on borrowings by the States, we have studied the guidelines received from the Union government. We are confident that Tamil Nadu will be able to avail itself of 0.35% of the 0.5% of the GSDP additional borrowing allocation made for power sector reforms, without compromising on free electricity supply to the farm sector,” Finance Minister Palanivel Thiaga Rajan said in his speech.

On this basis, the fiscal deficit for 2021-22 at 4.33% of the GSDP would still be within the overall norms prescribed by the 15th Finance Commission, he said.

“This [power sector reforms] will be critical to ensuring adequate financing sources for the size of the fiscal deficit that has been budgeted,” said Aditi Nayar, chief economist at the ratings firm ICRA Ltd. She said the revised revenue deficit accounted for over 60% of the budgeted fiscal deficit, a matter of concern. Revenue deficit is the difference between government’s revenue receipts and revenue expenditure and reflects that the government’s earnings are not adequate to meet day-to-day operational expenses.

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Printable version | Dec 6, 2021 12:16:38 PM | https://www.thehindu.com/news/national/tamil-nadu/fiscal-deficit-breaches-4-of-gsdp/article35905918.ece

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