Tamil Nadu’s finances show signs of improvement

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The finances of the Tamil Nadu government are showing signs of improvement, though it is too early to arrive at any definitive conclusion about the fiscal position. 

Compared to 2021-22, the year after the outbreak of COVID-19, the proportion of capital expenditure to total expenditure is gradually moving to 13% after it went down to 10.4% in 2017-18. Likewise, it can be seen that the share of capital expenditure in net public debt or net borrowings is on the rise, despite a substantial amount of borrowings still being used to finance revenue expenditure. 

 

The increase in the proportion of capital expenditure to the net borrowings and total expenditure signifies that more and more money is being spent for creating or acquiring an asset of lasting nature. Fifteen years ago, nearly 86% of the public debt was used for capital expenditure. Since then, the share steadily and steeply declined to around 44% in 2021-22. Since then, concerted efforts have been made to arrest the trend and improve the proportion. As per the budget estimates of the coming year, it is expected to be about 55%.

The situation would have been better if the State government had been able to slash considerably subsidies and transfers made for the purposes of electricity, transport, and the public distribution system (PDS). Take the case of PDS: while the proposal of disturbing the existing supply of rice, free of cost, to all ration cardholders (including non-priority households) would not be entertained by the political executive at any point of time, the government has not been able to increase the selling prices of palmolein oil (₹30 per litre) and “tur dhal” (₹25 per kg) in the last 15 years. As of now, the government’s subsidy amounts to ₹79.15 per kg of “tur dhal” and ₹118.91 for every litre of  palmolein oil.

Under the given circumstances, the government will have to shell out around ₹4,800 crore annually. In the coming year, the overall food subsidy bill is expected to be ₹14,000 crore. In respect of the Tamil Nadu Power Distribution Corporation, the State government will provide in the coming year ₹17,000 crore towards tariff subsidy and ₹7,700 crore for loss funding. 

In the case of transport corporations, the subsidy of different types comes to around ₹7,240 crore, and this includes free bus travel for women. A veteran policymaker feels that the government should send out a strong message that it will not be able to afford any huge financial support endlessly to any utility and the latter should take immediate steps for tangible improvement in operational efficiency.