Tamil Nadu Finance Minister Palanivel Thiaga Rajan on Monday said that the fiscal position of the state was “unsustainable” and blamed the previous All India Anna Dravida Munnetra Kazhagam government for mismanaging the economy, reported The Hindu.

Releasing a white paper on the state’s financial conditions, Thiaga Rajan said Tamil Nadu’s revenue deficit situation since 2013-’14 “has become truly alarming”. A white paper is a document meant to highlight certain information. A revenue deficit happens when the realised net income is less than the projected net income.

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Thiaga Rajan said that a “business as usual” approach cannot continue. “These problems can be corrected,” he said. “This is an opportunity to effect “once in a generation” reforms.”

The finance minister attributed the state of financial affairs to a lack of political and administrative will of the AIADMK government in the last seven years. He claimed that the current Dravida Munnetra Kazhagam government will correct the mismanagement in the next five years.

“The budget I will be presenting this Friday will be practically for six months,” the finance minister said, reported The Times of India. “Hence one cannot say how much of changes could be inculcated in this exercise. But going forward, the bitter medicine will be rightly delivered for the vested interests who exploited the state’s revenues for their personal benefits.”

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Thiaga Rajan said that the state had a revenue surplus in 2006-’07 and 2008-’09 when the DMK government was in power but recorded revenue deficit in 2009-’10 and 2010-’11 due to global financial crisis and the implementation of the Sixth Pay Commission recommendations.

“The situation turned around in 2011-’12 and 2012-’13 [during AIADMK’s regime] when revenue surpluses were again seen,” he said. “However, this improvement was short-lived and since 2013-’14, the state has continuously been in revenue deficit. This worsening situation has become truly alarming.”

Noting that there was a revenue surplus of Rs 1,760 crore in 2012-’13, he said the fiscal balance had worsened and a revenue deficit of Rs 1,789 crore was recorded in 2013-’14 that grew almost four times to Rs 6,408 crore in 2014-’15. It further worsened to Rs 35,909 crore in 2019-’20 even before the coronavirus pandemic hit the country.

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Thiaga Rajan also noted the state’s revenue deficit as a percentage of Gross State Domestic Product rose from 0.18% in 2013-’14 to 3.16% in 2020-’21. He said that this fiscal deficit was “unsustainable” because a part of the fiscal deficit was being used to fund the revenue deficit, he said.

Fiscal deficit is a shortfall in the central government’s income when compared with its overall expenditure.

“Since the year 2017-’18, the share of revenue deficit in fiscal deficit has shown a substantial jump to 50% or more,” he said. The finance minister also pointed out that since 2013-’14, the government maintained the fiscal deficit of around 3% by postponing the implementation of certain items on expenditure.

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The finance minister said that the total government guarantees had increased to more than Rs 91,800 crore in 2020-’21 alone, which points to a liability and fiscal risk for the state. In 2019-20, Tamil Nadu had the third-highest guarantees outstanding amongst all states just behind Telangana and Andhra Pradesh.

A government guarantee is an arrangement in which a government entity undertakes payment of a debt or performance in the event of a default by the creditor.

Highlights of the white paper

  • The debt outstanding of around Rs. 5.7 lakh crore projected as of March 31, 2022, amounts to around Rs 70,000 burden on every citizen of the state. The public debt is Rs 2,63,976 per family, reported The Week
  • The accumulated debt of power and transport sector alone amounted to Rs. 1.99 lakh crore as of March 31. In the same time period, the accumulated losses of the two water sector boards amounted to Rs 5,282.57 crore
  • The Tamil Nadu Electricity Board sustains a loss of Rs. 2.36 per unit on every unit of power consumed
  • The operational cost of Chennai Metropolitan Water Supply and Sewerage Board is about Rs 36.58 per kilo litre. The cost of recovery for them is Rs 14.08 per kilo litre.