TN is in the Red, Biggest Borrower with Public Debt of Rs 2.63 Lakh Per Family: Govt Report

Tamil Nadu’s fiscal situation is in dire circumstances and business as usual attitude cannot continue as there are no buffers left and no fiscal headroom that would allow delay, said a white paper released here on Monday by state Finance Minister Palanivel Thiaga Rajan. The serious fiscal scenario is in part due to extraneous circumstances, but in substantial measure due to structural flaws in governance which have not been rectified in a timely manner, the first such report by the DMK government after it assumed office in May said.

The worsening deficit situation has led the state to be over-reliant on debt and the public debt is Rs 2,63,976 per family in Tamil Nadu. The DMK had often targeted the AIADMK rule while in opposition for mismanagement and the ruling party had promised a white paper on fiscal situation for ensuring “transparency.”

The report said the Covid-19 pandemic has greatly exacerbated the situation and highlighted how vulnerable Tamil Nadu currently is. “There are no buffers left. No fiscal headroom that will allow for delay.”

“Business-as-usual (attitude) cannot continue, and our approach must fundamentally change if we are to break out of this vicious cycle of increasing debt and interest costs. On the other hand, this is an opportunity to effect once in a generation reforms, many of which should have been undertaken years ago by any responsible government.”

The white paper says the fiscal position of Tamil Nadu has been deteriorating for the past eight years and such a long-term trend has affected development investments which in turn has affected growth.

Between 2006-13, in five out of seven years, TN had a net revenue surplus. However, since 2013, revenue deficit has become a recurring phenomenon.

DMK was in power during 2006-11 and AIADMK from 2011 to 2021. Tamil Nadu’s Revenue Deficit (RD) stands at Rs 61,320 crore (FY 2020-21) which is, 3.16 per cent of Gross State Domestic Product.

The average RD for all states and UTs was 0.1 per cent of GDP in 2017-18 and 2018-19, and for TN it was 1.5 per cent and 1.4 per cent of GSDP respectively.

The Fiscal Deficit (FD) of the state for FY 2020-21 is Rs 92,305 crore (4.43 per cent of GSDP). “The current levels of fiscal deficit are unsustainable primarily because a substantial portion of the fiscal deficit is simply to fund the revenue deficit.” The ratio of RD as a per centage of FD is 52.48 per cent for 2016-21 and it was just 14.94 per cent in 2011-16.

This rising trend of revenue-deficit-driven fiscal deficits “must be funded mainly by borrowing,” which has sharply increased the total debt outstanding. The period since 2012-13 has seen a continuous increase in the overall debt level of the state government.

It is expected to reach Rs.5,70,189 crore on March 31, 2022 as per the Interim Budget Estimates of 2021-22 and accordingly, “public debt as a percentage of GSDP is 26.69 per cent. It is worthwhile to note that, the public debt as a percentage of GSDP was 18.37 per cent in 2007.” The total outstanding debt in Revised Estimates 2020-21 is Rs.4,85,502.55 crore which is already 24.98 per cent of GSDP.

TN’s outstanding liabilities as a percentage of GSDP are significantly higher than comparator states of Maharashtra, Gujarat and Karnataka. “Tamil Nadu has the dubious distinction of currently being the largest borrower in the open market amongst all states in India.”

Almost every state has reduced the public debt-GSDP Ratio between 2003-2019. Tamil Nadu was also following the trend by reducing the ratio from 26 per cent to 17 per cent until 2012. However, the situation has been worsening since then.

Fiscal deficit financed by “Other means” for 2016-21 was a staggering 12.68 per cent of the total Fiscal Deficit and in real numbers it is Rs 39,071 crore.

Particularly in the last 3 years, amounts drawn from the Public Account to manage fiscal deficit are significant and more than 10 per cent of the FD in proportion.

The outstanding government guarantees for FY 2020-21 was Rs 91,818 crore which is 4.72 per cent of the GSDP, which is the third highest in the country following Andhra Pradesh and Telangana. State’s Own Tax Revenue as a proportion of GSDP has been declining each year reaching 6.40 per cent in 2017-18 and 5.82 per cent in 2019-20 and finally just 5.46 per cent in 2020-21. “This is a source of grave concern.”

The number of vehicles registered in Tamil Nadu is higher than in the neighboring states, but the total revenue as motor vehicle tax has not kept pace since the tax rates have not been revised in the past fifteen years.

States like Maharashtra collected much larger sums annually as electricity tax, since the existing rates of tax on electricity are lower in TN.

The last general property tax revision was done in 2008 and a big potential of tax collection is left untapped. The SONTR (State’s Own Non Tax Revenue) for 2020-21 is Rs 9,040 crore and it is 0.47 per cent of the GSDP.

This is a source of revenue underutilised due to both non levy and leakage. The share in Central taxes was 2.20 per cent of GSDP in 2007-08 and now it has declined to 1.28 per cent of GSDP in 2020-21.

The buoyancy in GST revenue is a cause for serious concern and this is a major factor on which the fiscal health of the states and in particular of Tamil Nadu would hinge on in the period post June 30 2022. The Union Government could not pay the GST Compensation as committed to the state governments. The outstanding compensation for 2021-22 (Estimated) is Rs 20,033 crore.

The deteriorating financial situation of State PSUs has resulted in a scenario where they cannot borrow without a guarantee from the government. Outstanding debt of TANGEDCO, TANTRANSCO (power generation and transmission entities) and State Transport Undertakings is 1,99,572.55 crore put together.

“If the outstanding debt of just the power and transport sector PSUs is aggregated along with government debt, the total amounts to 36 per cent of GSDP, significantly higher than the permissible limit.” STUs are making a loss of Rs 59.15/- for every Km operated.

Tamil Nadu lost Rs.2,577 crore since the previous government failed to conduct local body elections on time..

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