For most of the last six years, Tamil Nadu witnessed a declining trend in the proportion of its own revenue to the revenue expenditure.
If a State is able to achieve a higher proportion, its reliance on other sources, including borrowings, proportionately goes down. Revenue deficit will be lower.
A perusal of the reply given by Union Minister of State for Finance Pankaj Chaudhary to John Brittas of the CPI(M) on the issue of revenue of the States in the Rajya Sabha on August 1 reveals that it was all downhill for Tamil Nadu between 2017-18 and 2020-21. In the two years after the COVID-19 pandemic, the situation had seen an improvement, though the State was yet to go back to the 2017-18 level when its own revenue was 63.88% of the revenue expenditure.
A comparison with six other States, including three in the southern region, brings to the fore that during the period in question, Tamil Nadu’s figure was lower than those of Telangana, Karnataka, Maharashtra and Gujarat, while the State fared better than Andhra Pradesh and Uttar Pradesh.
As for the declining trend after 2017-18, K.R. Shanmugam, Director of the Madras School of Economics, says the growth of the Gross State Domestic Product (GSDP) was declining “continuously from 2017-18 to 2020-21”, affecting the State’s own revenue collection and forcing the government to borrow. In the same period, the growth of the revenue expenditure was higher than the own revenue. Interest payments increased faster due to the high debt level, pushing up the revenue expenditure.
K. Shanmugam, former Chief Secretary of the State government, who was the Finance Secretary during 2010-19, points out that one of the components that contributed to the rise in the revenue expenditure was the State government’s decision in the early 2017 to take over ₹22,815 crore in debt of the Tamil Nadu Generation and Distribution Corporation (TANGEDCO) and have it converted into grants for five years, with an annual instalment of ₹4,563 crore. Another factor was the lag effect of the implementation of the Pay Commission’s recommendations, effective October 2017. He acknowledges the growth of the State’s Own Tax Revenue (SOTR) was not in tune with that of the GSDP.
As for the ever-rising trend of revenue expenditure, Mr. Shanmugam cites Tamil Nadu’s “consistent focus” on welfare schemes, a feature which may not be there in many other States. An official of the Finance Department observes that in the last two years, there had been an improvement in the proportion of SOTR to GSDP.
