School education gets highest allocation, revenue deficit sees decline in TN budget

Tamil Nadu will see a reduction in the absolute level of the Revenue Deficit by over ₹7,000 crore this year, reversing an alarming trend of increasing deficits every year since 2014, finance minister Palanivel Thiaga Rajan said while presenting the ruling DMK’s first full-fledged budget on Friday.

The fiscal deficit as a percentage of GSDP has reduced to 3.80% in the Revised Estimates from 4.33% in the Budget Estimates while the 15th Central Finance Commission has recommended this grade to be up to 4.5% of GSDP for states in 2021-22.

The financial strain caused by the Covid-19 pandemic’s third wave and the record rains last November, added to an already distressed economic situation. But despite that, the ruling DMK which formed the government in May and presented an interim budget in August, fulfilled many poll promises focused on improving the livelihood of the poor and also implemented announcements from the previous budget, Rajan said.

This has also resulted in an increase in expenditure on subsidies but the finance minister assured the House that through “prudent fiscal management” they managed to contain other expenditure. “Despite massive expenditure commitments, this government has shown unparalleled fiscal discipline and management, asking the Legislature for an increase of only 1% of the Budget Estimates in the First Supplementary Estimates to the Budget,” he said.

So, the total revenue expenditure in the Revised Estimates 2021-22 has been estimated at Rs.2,59,150.97 crore which is a decrease as against the Budget Estimates 2021-22 of Rs.2,61,188.57 crore. And the overall revenue deficit has decreased to Rs.55,272.79 crore in revised estimates as against the budgeted amount of Rs.58,692.68 crore.

The finance minister exuded confidence that this budget will be the beginning of a great transformation. “In the last regime since 2014, the state finances have been on a decline,” Rajan said. “This is clearly illustrated by the rising Revenue Deficit and increasing proportion of Interest Payments to Revenue Receipts, among other indicators. After this seven-year slump, the reduction in Revenue Deficit, even in such a challenging year, is a testimony to this government’s prudent fiscal management.”

Yet, the minister warned that the coming financial year is likely to be challenging and replete with uncertainties. “The ongoing war in Ukraine can disrupt the global economic recovery,” Rajan said. “Global supply disruptions and demand shocks, including those triggered by the war, can adversely impact the State’s Tax Revenue. There is a prevailing consensus among economists that both inflation and interest rates may rise,” he added.

The full impact of dearness allowance revision and the phased impact of loan waivers will be experienced next year. In addition, the state government is taking over 100% of the full losses incurred by the TANGEDCO (The Tamil Nadu Generation and Distribution Corporation Limited – electrical power generation and distribution public sector undertaking.) Tangedco’s losses in 2021-2022 amount to more than ₹13,000-crore and the same has been sanctioned in the budget.

The budget focussed on increasing employability, investments in the state, women‘s education, health, climate change, economic development and ensuring welfare measures reach beneficiaries through data governance.

The highest budgetary allocation was made to the school education department of more than ₹36,000 crore for various initiatives. To motivate more girls from government schools to aspire to join higher education, an assistance of ₹1,000 a month will be provided to them (to be credited directly to their accounts). It is expected to benefit 5 lakh girl students.

In order to motivate government school students to join premier higher education institutions like the Indian Institute of Technology, Indian Institute of Science and All India Institute of Medical Sciences, the government will bear the full cost of their undergraduate education. Government school students who have studied from classes 6th to 12th will be eligible. “I wish there were better proposals in the Education Sector,” said Prince Gajendra Babu, General Secretary, State Platform for Common School Syllabus. “The concept of model school and special training in selected schools for pursuing higher education is against the spirit of equitable access to quality education for all children which is the mandate of the Constitution of India,” he said.

Moving from education to disaster management, the consistent heavy rain related flooding which occurred in Chennai last November with no warning from the MET had highlighted the need to upgrade the ‘Disaster Early Warning Systems’ for accurate prediction so that people and the government can be prepared. So the government in the budget announced that it will establish an advanced early warning system with supercomputers, a system of weather balloons, two weather radars, 100 automatic weather stations, 400 automatic rain gauges and 11 automatic water level instruments. An amount of ₹10 crore has been allocated for this.

Interestingly, the budget also took up spreading of misinformation on social media and has decided to establish a new ‘Special Social Media Centre’ to prevent the increasing crimes resulting from fake news.

Spending for public health has been limited to ₹17,000 crore. The budget cited scientific evidence that depression, anxiety disorders are on the rise and hence the Tamil Nadu Institute of Mental Health and Neuro Sciences (TNIMHANS) will be established by upgrading the Institute of Mental Health (IMH), Kilpauk to treat mental illness. An amount of ₹40 crore has been sanctioned for this.

Reacting to the Budget, K E Raghunathan, convenor, Consortium of Indian Associations said that it was disappointing for not addressing the core needs of MSMEs. “Giving more and more loans is not enough to support MSMEs,” said Raghunathan. “Already ECGLS scheme is available from the Union Government and has more than ₹2 lakhs crore of unutilised funds. The focus is more on Infrastructure creation, Start-ups, Geo Mapping Clusters and supporting ‘doing well’ enterprises — which is also the focus of the Union Government. What is required is to support those who are not eligible to avail it. But that is missing.”

Union-State Fiscal Relations:

Rajan hoped that the Union government would heed their request that the Goods and Services Tax (GST) would extend the compensation by at least two years for shortfall in tax collection as revenues of the states are yet to recover from the pandemic. The revenue growth which Tamil Nadu witnessed during the Value Added Tax regime has not been achieved since the implementation of the GST Act, he said. The GST compensation period is coming to end on 30 June, 2022. “Consequently, in the coming financial year, Tamil Nadu will face a revenue loss of approximately ₹20,000 crore,” he said.

The finance minister complained that though the share of Tamil Nadu in the country’s population is 6.12% and its share of the National Economy is close to 10%, successive Central Finance Commissions have failed to award a commensurate share in the divisible pool of taxes. He pointed out that the 15th Central Finance Commission has recommended a meagre 4.079% to the state and allocated ₹21,246 crore as the local body grant for a period of five years, which represents a “modest increase” from the ₹17,010 crore earmarked by the 14th Central Finance Commission. The 15th Central Finance Commission has recommended certain sector specific and state specific grants and Rajan urged for these to be provided without tying them on to any other ongoing centrally sponsored and central sector schemes.

The finance minister cited the recent archaeological findings in the Thamirabarani region which have established that the ancient Tamil civilization is at least 3,200 years old, to criticise the BJP’s hegemonic influence without taking the party’s name. He said, “This government, views itself as an inheritor of this long heritage, vested with the historic duty to lead the Tamil civilisation at a critical point in time when the forces of cultural fascism are trying to destroy the cultural diversity of our country.” He said that while the Constitution envisaged a harmonious relationship between the Union and States, the state is “deeply concerned” at the “persistent attempts to erode the federal architecture”. He added that like the late DMK patriarch M Karunanidhi who asserted state autonomy, this government too will continue to fight for the legitimate rights of all states.

Srinivas Anikipatti, senior director, Tamil Nadu and Kerala, Knight Frank India, described the budget as robust in all segments. “The announcement on the increase of FSI in locations around metro rail corridors and Outer Ring Road to facilitate urban development is a positive one and will further enhance Chennai’s real estate economy at large,” Anikipatti said.