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Time not ripe for fiscal consolidation, TN finance minister says in budget

Tamil Nadu’s revenue deficit is expected to widen to Rs 58,692.68 crore because of the current, exceptional times, finance minister Palanivel Thiaga Rajan said, but that does not detract from the DMK government’s commitment to fiscal rectitude and consolidation

August 13, 2021 / 06:27 PM IST
Tamil Nadu Finance Minister P Thiaga Rajan (PC-Facebook)

Tamil Nadu Finance Minister P Thiaga Rajan (PC-Facebook)

A cut in petrol cess, a fiscal deficit within the limits prescribed by the 15th Finance Commission and no new taxes were among the key proposals in the budget presented by the DMK government in Tamil Nadu on August 13, with finance minister Palanivel Thiaga Rajan making it clear that fiscal consolidation would have to wait for a while.

“Given that the economy is still just recovering from the impact of successive waves of the Covid-19 pandemic, the time is not yet ripe for fiscal consolidation,” Thiaga Rajan said while presenting his maiden budget in the paperless form in the state assembly. The DMK came to power three months ago.

The minister announced a reduction in petrol cess by Rs 3 per litre, forgoing revenue of Rs 1,160 crore.

The revenue deficit is expected to widen to Rs 58,692.68 crore in the revised budget for 2021-22 from the “unrealistic” interim estimate of Rs 41,417.3 crore.

“This increase in revenue deficit is on account of the exceptional times that we find ourselves in and does not detract in the least from this government’s commitment to fiscal rectitude and consolidation in the coming years, as emphatically indicated in the white paper,” Thiaga Rajan said.

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Capital expenditure has been proposed at Rs 42,180.97 crore compared with Rs 43,170.61 crore provided in the interim budget.

On this basis, the fiscal deficit for 2021-22 is estimated at Rs 92,529.43 crore in the revised budget compared with Rs 84,202.39 crore, which was 3.94 per cent of gross state domestic product, in the interim budget.

“The fiscal deficit for 2021-22, at 4.33 percent of GSDP, will still be within the overall norms prescribed by the 15th Finance Commission,” the finance minister said.

He indicated that deeper reforms would be undertaken once “the impact of the Covid-19 pandemic is overcome” and reiterated his commitment to correct “Tamil Nadu’s debt overhang without any delay.”

Tamil Nadu’s fiscal situation is in “dire circumstances” and revenue must be increased in an “equitable manner” to arrest ballooning debt, according to the white paper on the state’s finances released on August 9.

Also Read: Tamil Nadu finances ‘dire,’ revenue must increase to curb ballooning debt

“There are no buffers left,” the white paper said. “Business-as-usual cannot continue and our approach must fundamentally change if we are to break out of this vicious cycle of increasing debt and interest costs.”

The white paper documented the deterioration in the state’s tax-to-GSDP ratio to 5.46 percent in 2020-21 from 8.48 percent in 2006-07. In current GSDP terms, this represents a loss of about Rs 65,000 crore worth of revenue annually, the minister said.

“Through improved administration and plugging of leakages, revenue collections can be substantially stepped up,” he said.

Thiaga Rajan indicated targeted action against tax evasion based on advanced data analytics. The number of roving squads would be increased to 100 and they would be equipped with vehicles and RFID-reading devices to prevent the movement of vehicles without bills.

The government, he said, would launch a Samadhan Scheme to clear dues of Rs 28,000 crore under the state’s value-added tax and other legacy legislations.

The minister said all the poll promises of the DMK would be gradually fulfilled. As promised, Rs 4,000 per family had already been disbursed, he said.

The government plans to waive loans to the tune of Rs 2,756 crore due from self-help groups to cooperative credit societies. A provision of Rs 600 crore had been made for this purpose in the revised budget, he added.

Some key announcements in the TN budget:

- Formation of a committee to identify and set up new ration shops

- Increase in food subsidy to Rs 8,437.57 crore

-  Separate expert panel to claim GST compensation due from the Centre

- Revised DA for government employees from April 2022

- Maternity leave for civil servants increased to 12 months from 9 months

- Five new information technology parks to be set up

- New State Industries Promotion Corporation of Tamil Nadu complexes in Thiruvannamalai, Dharmapuri and other districts

- Committee to frame new education policy for the state

- Formation of e-portal to ensure transparency in government procurement

- Digitisation of all assembly documents

- Defence industrial park in Coimbatore on about 500 acres

- Policy to protect the environment and the ecology during mining activities

- Creation of fund based on levy of green seigniorage cess to secure and restore abandoned quarry sites

- State-level credit guarantee scheme for small businesses

- Rs 1,000 crore international furniture park in Thoothukudi district

- Cell to facilitate the establishment of fintech companies
KT Jagannathan is a senior journalist based in Chennai
first published: Aug 13, 2021 05:35 pm

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