With the Centre continuing to tie power sector reforms to the provision of allowing half a percentage point additionally in fiscal deficit of States, the Tamil Nadu Government may prefer to wait for the former to come out with any new norm in this regard.
[Fiscal deficit pertains to the difference between total expenditure and the sum of revenue receipts and non-debt capital receipts.]
Union Finance Minister Nirmala Sitharaman, during her Budget speech, said the States would be, during 2022-23, allowed a fiscal deficit of 4% of the Gross State Domestic Product, of which 0.5 percentage point would be tied to the reforms. The conditions were already, according to her, communicated in the current year.
Chief Minister M.K. Stalin, in his response to the Budget, called for 5% fiscal deficit without conditions. As the DMK government is firm that it will not compromise on its stand of maintaining free power supply to the farm sector, it remains to be seen whether Tamil Nadu will be allowed to use any portion of the additional allocation meant for power sector reforms. For the current financial year, the government, in the revised Budget prepared about six months ago, stated that it would be able to avail itself of 0.35 percentage point of the 0.5 percentage point of the additional borrowing allocation made for the reforms. Asked whether similar treatment can be made this year too, a senior government official said, “We will have to see whether the Centre will issue any further guidelines or not.” However, he hopes to get 0.25 percentage point additionally.
Contingency plan
In the event of the Centre is not permitting the State to use any portion of the additional borrowing facility, Tamil Nadu has to keep its fiscal deficit within the mark of 3.5% for 2022-23. Perhaps, keeping this possibility in mind, the revised Budget had projected the State’s fiscal deficit to be 3.49% for the coming financial year.
Meanwhile, as the Union Budget is silent on the extension of the Goods and Services Tax compensation scheme, beyond June 30, the State government has been working on the preparation of its Budget for 2022-23 without any anticipation. At the pre-[Union] Budget meeting, Tamil Nadu Finance Minister Palanivel Thiaga Rajan urged the Centre to extend the scheme by at least two years.
What is comforting to the State government is that the receipts of the State Own Tax Revenue during January, going by preliminary figures, marked an upward trend, unlike in December 2021.
