Tamil Nadu’s fiscal indicators have deteriorated drastically from 2012-13 to 2018-19 and most borrowings in the recent years have gone to fund its revenue deficit, instead of capital expenditure, the 15th Finance Commission report tabled in the Parliament recently said.
Tamil Nadu moved from a “revenue surplus” to a “revenue deficit” State after 2012-13, it noted. A revenue deficit is the difference between the government’s revenue receipts and revenue expenditure and reflects that the government’s earnings are not adequate to meet its day-to-day operational expenses.
Tamil Nadu’s Debt-Gross State Domestic Product (GSDP) ratio has increased to 22.6% in 2018-19, from 17.2% in 2012-13, the Commission said.
The State implemented its Fiscal Responsibility Budget Management (FRBM) Act and has adhered to the limits set in recent years.
However, it needs to continue on the credible debt path and careful calibration of expenditure for generating future streams of income, the report added.
As per the report, Tamil Nadu’s revenue deficit-fiscal deficit ratio has approached 50% in the recent years, implying that most borrowings were being used to finance its revenue deficit.
Capital expenditure-GSDP ratio has fallen between 2011 and 2019 (except for 2016-17 when the State joined the UDAY scheme), it noted. Capital expenditure goes into infrastructure projects like roads.
Tamil Nadu experienced low growth in major sources of revenue (VAT, Stamp Duty and Registration and State Excise) during 2014-16, the report said.
However, consequent to some measures taken in 2017-18 and 2018-19 (like increase in VAT on petroleum products, hike in excise duty and levy of special fee on liquor), the State achieved 13% growth in its Own Tax Revenue and 15% growth in Own Revenue Receipts in 2018-19, it noted.
The Commission noted that the State needed to revert to its pre-2014 Revenue Deficit-Fiscal Deficit Ratio and invest its borrowings fully into capital expenditure and also need to improve its Own Tax Revenue-GDP ratio further.
The Commission also said promotion of aquaculture could become an important revenue generator for the State. Despite a coastline of around 1,076 km, the State’s aquaculture sector is smaller when compared to the neighbouring State of Andhra Pradesh, it noted.
On the positive side, the report noted that the State had been a front-runner in many metrics in Sustainable Development Goals, like poverty reduction, good health and well-being and quality education among others.