Tamil Nadu’s ranking dropped from 2014-15 to 2018-19 in a composite index of States’ fiscal performance, as per a research paper by the staff of Reserve Bank of India. The white paper on State Finances released by the DMK government last year also pointed to a declining trend in terms of development expenditure.
Key fiscal parameters like deficit, debt, expenditure quality, revenue mobilisation efforts among others were considered for the States’ performance composite index (SPCI).
As per the research paper titled ‘States’ Fiscal Performance and Yield Spreads on Market Borrowings in India’, Tamil Nadu was ranked sixth among States in 2014-15 in the composite index. It maintained the ranking in 2015-16.
However, the State’s rank dropped to 10 in 2016-17 and remained at that level in 2017-18.
For 2018-19, Tamil Nadu was ranked at 8 in the Index.
Karnataka was ranked 1 in the Index from 2014-15 to 2018-19, while Gujarat occupied the 2nd spot from 2014-15-2017-18 and occupied the third rank in 2018-19.
Maharashtra also saw fluctuations in its ranking in the Index. In 2014-15 it was ranked 5th and moved up to the third spot in 2015-16. It was ranked 4th in 2016-17, 7 in 2017-18 and 4 in 2018-19.
On an average, Tamil Nadu’s debt-Gross State Domestic Product ratio stood at 20% between 2014-15 to 2018-19, as per the paper.
For the period, over 25% of the State’s total expenditure went towards committed expenditure including interest payments, it added.
As per the research paper, on an average from 2014-15-2018-19, 10% of expenditure went towards capital outlay which can help in improving growth prospects through building requisite infrastructure.
States’ spent about 25% of total expenditure towards committed expenditure including interest payments, while share of capital outlay was consistently below 15% for the said period.
Own tax revenue generation accounted for over 70% of Tamil Nadu’s revenue.
One of the aspects in which Tamil Nadu lagged behind in the Index when compared to other States was in the Expenditure Quality Index. For this sub index, the paper took into account three aspects: committed expenditure to total expenditure ratio; capital expenditure to total expenditure ratio and development expenditure to total expenditure ratio.
Tamil Nadu’s score in this metric was 43.8 in 2018-19, when compared to Karnataka’s score of 78 and Gujarat’s score of 63.3.
The white paper on State Finances noted that development expenditure included the expenditure on social services like education, medical and public health, water supply and sanitation, housing, urban development, nutrition and on economic services including agriculture and allied activities, rural development, special area programmes among others.
The white paper pointed out that the Development Expenditure as a percentage of Aggregate Disbursement for Tamil Nadu was 56.7% in the revised estimate for 2019-20 and 57.4% in budget estimate for 2020-21, when compared to 64.9% and 62.8% respectively for Gujarat.
The authors Ramesh Jangili, N.R.V.V.M.K. Rajendra Kumar and Jai Chander of the research paper concluded that better fiscal management and improved market liquidity could help states to reduce their cost of borrowing.
The composite index could be used by State governments and investors for assessing States’ fiscal performance. State governments could use the index to orient or reorient their fiscal policies towards improving their performance in order to reduce the cost of borrowing, they added.
Tamil Nadu Finance Minister Palanivel Thiaga Rajan hinted at taking corrective measures to fix the State finances. The upcoming State budget for 2022-23 would be keenly watched on these aspects.
