Tamil Nadu

Pledge to eliminate revenue deficit remains on paper

Former CM Jayalalithaa’s promise to eliminate revenue deficit by 2019-20 remains on paper as the State continues to witness an opposite trend

Three years after then Chief Minister Jayalalithaa promised to eliminate the revenue deficit by 2019-20, the State continues to witness an opposite trend, as the government is poised to run a revenue deficit during 2020-21 — the eighth year in a row.

Revenue deficit denotes the excess of revenue expenditure over receipts. As per Budget estimates, the deficit will be ₹21,618 crore. For 2019-20, the figure has been revised to ₹25,072 crore.

Broadly, revenue expenditure refers to salaries, subsidies and interest payments, whereas revenue receipts pertain to the State’s own revenue and Central transfer.

The targets under the State Fiscal Responsibility Act were revised through an amendment to the law in September 2016. According to the amendment, the ratio of the revenue deficit to receipts should not exceed 5% by 2018-19. It also mandates the elimination of the deficit by 2019-20 and adherence to it thereafter. The government is expected to soon come up with a Bill to amend the law with modified targets. A reason for the prevailing trend was provided by Deputy Chief Minister O. Panneerselvam during his Budget speech. “The burden imposed on the State’s finances by the takeover of debt and losses of the Tamil Nadu Generation and Distribution Corporation (Tangedco) under the UDAY (Ujwal Discom Assurance Yojana, aimed at the financial and operational turnaround of power distribution companies), the lag effect of the implementation of the 7th Central Pay Commission’s recommendations, and the slower growth in tax revenue, both at the Centre and in the State, have all caused the increased revenue deficit,” he said.

In the last few years, the State government has consistently complained that the 14th Finance Commission had given T.N. a “raw deal”. A senior policy-makersaid the system of targets stipulated under the law had had a “deleterious impact”. State governments, in general, were compelled to “dress up the numbers”, the policy-maker said. K.R. Shanmugam, Director of the Madras School of Economics, said that so long as the revenue deficit remained less than 1% of the Gross State Domestic Product (GSDP), there was nothing much to worry about. However, he said the increase in the revenue deficit in the last two years was a “matter of concern”.

“You will have to look at the track record of the State government in meeting its commitments, like debt repayment. Ours is far better than many other States,” said former Additional Chief Secretary R. Kannan, adding that the culture of the State government in managing finances was such that fiscal prudence will be achieved eventually.

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Printable version | Feb 22, 2020 7:41:18 PM | https://www.thehindu.com/news/national/tamil-nadu/pledge-to-eliminate-revenue-deficit-remains-on-paper/article30825473.ece

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