TN tops southern States in revenue deficit: RBI

Govt. cites ripple effects of economic stagnation, fall in share of Central devolution as reasons

Tamil Nadu, a State known widely for providing a number of freebies, tops the list of southern States in revenue deficit, according to the Reserve Bank of India (RBI).

For the year 2016-17, the projected revenue deficit of Tamil Nadu was ₹158.5 billion, as per the RBI’s annual report, ‘State Finances: A study of budgets of 2016-17,’ which was released on Friday.

According to the 2017-18 budget tabled in the Tamil Nadu Assembly in March, the revised estimate of revenue deficit for 2016-17 was ₹ 154.59 billion. For the current year, the budget estimate of revenue deficit is ₹ 159.3 billion. But, the RBI report was prepared on the basis of the data of budget estimates presented at the time of submission of budgets of State governments in 2016.

Kerala follows Tamil Nadu in the parameter of revenue deficit, which represents excess of revenue expenditure over revenue receipts. Its budget estimate of revenue deficit was ₹ 130.7 billion for 2016-17. While Andhra Pradesh and Telengana also reported relatively lower revenue deficit, Karnataka appeared to be the exception, by projecting a revenue surplus of ₹5.2 billion for 2016-17.

Tamil Nadu has attributed the revenue deficit to a number of factors such as the “ripple effects of economic stagnation, continuing fall in the State’s share of Central devolution, adverse effect of demonetisation and the ban on the sale of properties in unapproved layouts” These reasons were cited in the last two budget speeches of the State’s Finance Ministers — O. Panneerselvam in July 2016 and D. Jayakumar in March this year.

Resource constraints

Despite facing “severe resource constraints,” as stated by Mr. Jayakumar, the Tamil Nadu government in the last one year took many decisions, which had created for it additional commitments. The decisions included waiver of crop loans small and marginal farmers owed to co-operative institutions; free power to domestic consumers up to 100 units bi-monthly; to handloom consumers 200 units and to power looms 750 units bimonthly and the takeover of debt of the Tamil Nadu Generation and Distribution Corporation (TANGEDCO) under the UDAY scheme.

However, as for the debt takeover, the government feels that the impact, as reflected in the fiscal deficit breaching the threshold of 3%, is only “temporary.” [The fiscal deficit pertains to the difference between the total expenditure and the sum of revenue receipts and non-debt capital receipts].

Comforting aspects

There are some aspects of the RBI’s report which provide comfort to the State. With regard to the Central devolution and transfer of resources in net terms, Tamil Nadu comes next to Andhra Pradesh. The figures of budget estimates for 2016-17 are ₹493.7 billion for Tamil Nadu and ₹513.4 billion for Andhra Pradesh, which underwent bifurcation in 2014.

Tamil Nadu, like most of the southern States, has been able to generate two-thirds of total revenue receipts through its own sources, tax and non-tax. This only means less dependence on Central funds.