Chennai: As Tamil Nadu moves into another election year - the by-polls to as many as 20 vacancies in the Assembly which are being staggered beginning with Tiruvarur announced for January 28 and ensuing Lok Sabha polls - the State’s finances at this juncture seem far more problematic for the Chief Minister, Mr. Edappadi K Palaniswami.
Is this another classic case of running with the hare and hunting with the hounds vis-a-vis the Central Government? First let us take the placatory part of it that any state government is duty-bound to fulfil, when confronted with a major natural disaster like the 'Gaja' cyclone that ripped apart coastal Cauvery delta districts, particularly Nagapattinam and Thanjavur- in November 2017.
Considering the extent of damage and destruction caused by ‘Gaja’, Tamil Nadu government's memorandum to the Prime Minister had sought about Rs 15,000 crore for permanent relief and rehabilitation measures. And all that the Central government had sanctioned by December-end was only Rs 1,146 crore. Add the earlier interim relief sanctioned by the Centre of Rs 353.70 crore and they do not even cross the Rs 1,500 crore-mark.
But with all-round demands for speeding up relief and rehabilitation works in the Gaja-hit districts, the State, as revealed by the Chief Minister in the Assembly on Friday, through its various departments has already spent Rs 2,301.41 crore, stretching its finances to the maximum. The distribution of available budgeted resources for disaster relief has all the more run into sharpened conflicts with Tamil Nadu having to cope up with three major cyclones in the last three years.
The 2016 poll mandate for the AIADMK has thus boiled down to coping with natural disasters, while implementing in installments the populous schemes the party had promised in its election manifesto, like laptops for ‘Plus-2’ students, the ‘Amma’ subsidised ‘two-wheeler’ scheme for working women and so on. Even the ‘Kudimaramathu’ scheme that the Chief Minister had launched with much fanfare to desilt major tanks and reservoirs got a short shrift, after the 2018 floods in the Cauvery, thanks to the excess flows from the upper riparian Karnataka state.
Already penalised by the lower level of overall transfers by the 14th Finance Commission, the burden of having to implement the 7th Pay Commission recommendations, and the implementation of the ‘UDAY’ scheme for power utility, Tangedco, under which State government has taken over a debt of '22,815 crore, the Deputy Chief Minister, Mr. O. Pannerselvam, who is also in-charge of Finance, has very little space to manoeuvre. This is notwithstanding the fact that the Centre has eased the market borrowing limits, factoring in the Tangedco debt. Again, with the government committed to drastically downsizing the state-run liquor retailer, ‘Tasmac (Tamil Nadu State Marketing Corporation),’ excise revenue is no longer expected to be the cash-cow for Fort St. George in future.
All this is telling in the ‘revenue deficit’ of the Tamil Nadu government which is on the rise, more so when the primary agriculture sector has virtually crippled in 2018; the secondary manufacturing sector just barely makes its presence felt except in a few fast-moving consumer segment, and the services sector is the only horse that is steadily running to push the State Gross Domestic Product (SGDP).
The few other plusses for the state have been its progress in health and education though even in those two fields, of late quality issues have cropped up. The Chief Minister’s Comprehensive Health Insurance Scheme has extended its reach beyond what was originally envisaged, which should hopefully reflect in the state’s human development index (HDI). Allocation under the 'Swachh Bharat Mission’, which in 2018-19 peaked to '1,361.60 crore, has been another major item of revenue expenditure , but setting right the finances of the public and cooperative sugar mills to pay sugarcane farmers their dues is not yet a priority.
However, it is with all these limitations that the State exchequer has to perform its placatory role, apart from meeting the costs of administration, when it comes to ‘running with the hare’. Now, let us examine the obverse side to this coin, figuratively termed, ‘hunting with the hounds’. From where or which avenues does Tamil Nadu pick up its revenue from and what are the buoyant segments?
Officials speak of Tamil Nadu being one of the more pro-active states in implementing the “revolutionary Goods and Services Tax (GST)’, introduced from July 1, 2017. Part of the ‘game-changing’ deal to bring in various taxes under one head was that the Centre said it would compensate the States for any loss of revenue in the first five years of the GST implementation.
While the State Goods and Services Tax (SGST) and Inter-State Goods and Services Tax (IGST), is constitutionally supposed to directly come to the State’s kitty as part of commercial taxes revenue, the Centre agreed to pay the GST revenue loss compensation as part of the grants-in-aid. The State continues to have rights to adjust ‘VAT’ rates on petrol, diesel, liquor and tobacco products, which along with real estate, is now currently out of the purview of GST.
According to official figures, for the fiscal year 2017-18, the total ‘GST revenue' Tamil Nadu is supposed to get from the Central government is Rs 25,540.69 crore. This includes Rs 16,201.70 crore from SGST, Rs 7.402.99 crore from IGST, a provisionally released IGST advance amount of Rs 1,304 crore and GST compensation for the year put at Rs 632 crore.
But what is the reality at the beginning of January 2019 as revealed by the figures in the Governor’s recent address to the State Assembly? Towards ‘IGST settlement’, the Centre is yet to release '5,454 crore for the year 2017-18, while the ‘short payments on GST compensation’ to tune of '455 crore for 2017-18 is yet to reach the Tamil Nadu exchequer, capped by another '1,305 crore for the period April-September 2018. All these are “adversely affecting the State finances,” the Governor’s address underscored.
The world over, reasonable growth in jobs and buoyancy in revenues, besides procedural hassles being minimised, have been the sine qua non for major tax reforms to take off. But if Tamil Nadu is still to go with a begging bowl to the Centre to plead for what is due to it under the ‘GST revenue' scheme, then that far commercial taxes revenue is most likely to take a beating in fiscal 2019-20. In fact, 78.71 per cent of ‘State’s Own Tax Revenue’ - known as SOTR in official parlance - comes from commercial taxes, as per the budget background papers.
Given the ‘slow growth in state excise’, and despite a positive pick-up in the collection of stamp duty and registration fees (following downward revision of guideline value last year) and in the motor vehicles tax, the total budgeted estimates for commercial taxes revenue of Rs 86,858.59 crore for 2018-19, is likely to face a shortfall.
Already, barring a few flagship programmes, the State is being asked to take on a larger proportion in centrally-funded schemes, even as some leeway is left for the possibility of Central funds flowing in through large road infrastructure projects and the ‘Smart City’ programme.
The Rs 1.59 lakh crore, recommended by the 14th Finance Commission, as devolution of Central taxes for a five-year period 2015-16 to 2019-20 to Tamil Nadu, is seen as much less than what other similarly-placed States have managed to get. The cumulative impact of all these, in all likelihood, would be a greater squeeze on social welfare programmes. It is anybody's guess, how long Tamil Nadu's finances will have to run with the hare and hunt with the hounds!
