Despite swelling revenue deficit, Tamil Nadu presents a tax-free Budget

Drop in Centre’s share causes strain

The Edappadi K Palaniswamy-led AIADMK government in Tamil Nadu presented its last full-fledged Budget terming it a ‘realistic one with modest projections’.

The Budget, ahead of the Assembly election next year, was a tax-free exercise though the State continues to see its revenue deficit swelling with the burden of takeover of power utility debt, lag effect of the Seventh Pay Commission and poor state and central tax collections. Also, the government’s salary and pension expenditure has been rising steadily.

Despite the challenging financial position, the State government has managed to keep its fiscal deficit below the recommended norm. Its net borrowings also meet the cap. But its revenue deficit is likely to double to ₹21,617.64 crore in 2020-21 compared to the projection of ₹10,040.31 crore, mainly due to a huge drop in the share of its taxes from the Centre.

The composition of the State’s revenue receipts remains decent, with about 70 per cent coming from its own mop up. A major share of its capital spending continues to be on key segments such as power, water supply, housing, transport and urban development.

“The State’s economy grew at 8.17 per cent in 2018-19. In 2019-20, growth is at 7.27 per cent, which is significantly higher than the projected all India growth rate of five per cent. We expect an even stronger growth performance in 2020-21,” Tamil Nadu Deputy Chief Minister O Pannerselvam said while presenting the Budget for 2020-21 in the Assembly.

Tamil Nadu Chief Minister Edappadi K Palaniswami and Finance Minister O. Panneerselvam along with TN Finance Secretary S. Krishnan on their way to present the Tamil Nadu Budget for the year 2020-21 on Friday. - Photo: Bijoy Ghosh

The Budget projects total revenue receipts of ₹2,19,375.14 crore for 2020-21. The Revised Estimate of the revenue receipts for 2019-20 is₹191,860.88 crore, which is ₹5,860.29 crore lower than the Budget Estimate.

There was a significant drop of ₹7,586 crore from the Centre’s share to Tamil Nadu, which was described as “unprecedented” and impacted the financial situation. However, the state managed to increase non-tax revenue and obtain more grants from the Centre. As a result, the shortfall was moderated. But dues from the Centre remain a major issue.

Budget estimates

The Budget estimates the State’s own tax revenue (SOTR) for 2020-21 at ₹133,530.30 crore. The RE of the SOTR for 2019-20 is expected to be ₹1,20,809.63 crore against the BE of ₹1,24,813.06 crore.

The revenue expenditure has been projected on a ‘realistic basis’ at an aggregate level of ₹2,40,992.78 crore for 2020-2021.

Due to increased expenditure and reduced revenue receipts, the overall revenue deficit for 2019-20 increased to ₹25,071.63 crore in the Revised Estimate for 2019-20 as against the BE of ₹14,314.76 crore.

Capital outlay

For 2020-21, the capital outlay has been enhanced at ₹36,368 crore to support growth-related activities. The overall fiscal deficit has been estimated at ₹59,346.29 crore, which is 2.84 per cent of GSDP and within the statutory limit.

The government proposes to raise about ₹59,209.30 crore as net debt during 2020-21 against the overall permissible borrowing limit of ₹62,757.80 crore for the year. The net outstanding debt as of March 31, 2021 is expected to be ₹4,56,660.99 crore. Thedebt-to-GSDP ratio will be 21.83 per cent, which is well within the norm of 25 per cent.

‘Growth-focussed Budget’

Terming it a ‘growth-focussed Budget’, Finance Secretary S Krishnan said Budget 2020-21 is a realistic one and has made moderate projections based on the trends. “While additional allocations have been made for roads, irrigation, power and drinking water projects, it has also focused on supporting weaker sections - tribal communities, disabled and elderly people.”