By bringing out a White Paper on Tamil Nadu’s finances, the DMK government has made a good start to right the loss of fiscal discipline. Subsequently, the government, in its maiden Budget, lowered the retail price of petrol by ₹3 a litre. Even though it only partly fulfils one of the DMK’s important poll promises, it deserves praise for being implemented at a time of financial stress. That TN’s fiscal indicators have not been in great shape, post 2013-14, is well known and even indicated in certain documents of the Union and State governments. The State’s perennially loss-making power, water and transport utilities have only aggravated the situation. A serious financial crisis is waiting to unfold unless corrective steps are taken. This is what has been encapsulated in the White Paper, which has rightly identified the decline in the ratios of the State’s Own Tax Revenue (SOTR) to Gross State Domestic Product (GSDP) and overall tax-GSDP as two key areas of concern, in view of the SOTR constituting around two-thirds of the State’s total revenue receipts. With ballooning revenue and fiscal deficits, the State has become overreliant on debt, estimated to be ₹2,63,976 per family. The White Paper has cited a lack of proper governance as the reason behind most of the problems.
By highlighting the crisis in the water, power and transport sectors, the document has already triggered a question on whether the government will hike taxes and user charges. As it also talks of “profound structural reforms” and “re-orientation of subsidies”, it has signalled that the government favours a targeted approach in subsidy provision. The Budget echoes this by spelling out that the proposed scheme of ₹1,000 a month to women heads of families is for “the genuinely poor”. But, in a set-up characterised by the tradition of competitive populism and a close relationship between economic decisions and considerations of electoral politics, it remains to be seen how far the new government can pursue such an approach. After having blamed the previous government for the fiscal situation, the government, through the Budget, could have made a beginning in fiscal consolidation. The explanation for not going for it is that the economy is still recovering from the impact of COVID-19. But an increase in a few taxes and expenditure reduction in some areas would have shown that the government means business. As and when the government chooses to increase utility tariffs, it should ensure that such measures are matched by an improvement in service quality and a simplified and reasonable tax structure. This is where Chief Minister M.K. Stalin’s re-assurance, in a recent interview to The Hindu, assumes significance — of not going back on electoral promises for welfare. A rational approach with a human touch would help improve TN’s financial health. The DMK government has time on its side to turn around the fortunes of the State.
