Tamil Nadu will fall into a debt trap if the government continues to borrow to pay the old debt without focusing on infrastructure development, attracting real investments in manufacturing, preventing leakage, widening tax base and boosting the investors confidence, said experts.
“Is Tamil Nadu moving towards a debt trap? The answer is a sound yes,” said Sriram Seshadri, Founder and Managing Partner, Disha Consulting and formerly Partner and Managing Director, Accenture India, told IANS.
Continuing further he added: “Tamil Nadu is borrowing to retire its earlier debt and meet revenue expenditure. The interest outgo is almost one third of the revenue. The cost of borrowing is going up year after year.”
According to Seshadri, the state is reckless in giving freebies and subsidies to all and cited the 100 units of free power – by the AIADMK government- to all domestic consumers as one example.
Most of the budgetary allocations are towards revenue expenditure and not much for infrastructure development and the possibility of long term revenue is not there, he added.
He said the state got into the vicious cycle of borrowing to retire earlier debt five years back.
“Thought welfare economy is good, capital formation/infrastructure spending is one which will pave the way for long term sustenance,” Dr.Gowri Ramachandran, Economist and Chairperson – Expert Committee on Economic Affairs, Hindustan Chamber of Commerce told IANS.
Presenting the state budget for 2023-24 and the Medium Term Fiscal Plan (MTFP) the former Finance Minister Palanivel Thiaga Rajan said Tamil Nadu plans to borrow a sum of Rs 1,43,197.93 crore duringand make a repayment of Rs 51,331.79 crore.
“As a result, the outstanding debt as on 31st March 2024 will be Rs 7,26,028.83 crore. This constitutes 25.63 per cent of GSDP (gross state domestic product) in 2023-24,” MTFP said.
The total revenue receipts of the state including the central transfers are estimated to be Rs 2,70,515.23 crore in Budget Estimates 2023-24 as against the Revised Estimates of Rs 2,45,659.68 crore in 2022-23.
The State’s Own Tax Revenue (SOTR) for next fiscal is estimated at Rs 1,81,182.22 (Rs 1,51,870.61 crore as per revised estimates for 2022-23, said MTFP.
The State’s Own Non-Tax Revenue has been estimated at Rs 20,223.51 crore in the Budget Estimates for 2023-24.
Tamil Nadu’s share in central taxes is estimated at Rs 41,664.86 crore in budget estimates 2023-24 as against Rs 38,731.24 crore in the revised 2022-23 estimates.
According to MTFP, the grants-in-aid from the central government for FY24 is estimated at Rs 27,444.64 crore and the reduction is due to the stoppage of GST Compensation from June 30, 2022, onwards.
“This has resulted in a shortfall of around Rs 20,000 crores per annum. Further, from the current year onwards, funds for several centrally sponsored schemes are being directly released to the bank accounts of implementing agencies and local bodies or beneficiaries (in the case of scholarships), without being received into the Consolidated Fund of the State,” the MTFP notes.
The revenue expenditure is estimated at Rs 3,08,055.68 crore for 2023-24 and the capital expenditure will be Rs 44,365.59 crore.
The revenue deficit for 2023-24 is estimated at Rs 37,540.45 crore.
Ramachandran said Punjab, Rajasthan, Kerala, West Bengal, Bihar, Andhra Pradesh, Jharkhand, Madhya Pradesh, Uttar Pradesh, and Haryana are the states with the highest debt burden in India.
“Among the five major south Indian states, Telangana has the lowest debt to GSDP ratio of 25.3 per cent, followed by Karnataka (27.5 per cent), Tamil Nadu (27.7 per cent), Andhra Pradesh (32.8 per cent), and Kerala with (37.2 per cent) is at the bottom of this list,” Ramachandran said.
Tamil Nadu had an outstanding liability of about Rs. 4.73 lakh crore at the end of March 2022 on funds raised through the issue of bonds, Ramachandran said.
“About 32.4 per cent, or about Rs 1.53 lakh crore, of the outstanding amounts are coming up for repayment by 2026-27. To bridge the gap between its income and expenditure or, in other words, fiscal deficit, Tamil Nadu borrows from the market through the issue of State Development Loans (SDLs) and other bonds,” she added.
Adding further Ramachandran said Tamil Nadu is one of the few States that have been focusing on elongating the maturity profile of their market borrowings.
“SDLs form a major part of Tamil Nadu’s total outstanding liabilities. According to the data shared in the Reserve Bank of India’s (RBI) report, SDLs account for about Rs 5.32 lakh crore of the State’s total outstanding liabilities of about Rs 7.54 lakh crore estimated at the end of March 2023,” Ramachandran remarked.
“Outstanding debt of Tamil Nadu at the end of March 2024 is estimated to be 25.6 per cent of GSDP. Outstanding debt is estimated to increase to 25.9 per cent of GSDP at the end of March 2026,” Ramachandran said.
Widening the tax base, plugging the leakage are some of the concrete measures Tamil Nadu should implement to shore up its finances.
According to Seshadri, increasing the tax revenue does not mean hiking tax rates and other charges is like flogging the dead horse. The current DMK government has done this by increasing the power tariff and other rates.
The tax revenue will increase only when industrial investments happen in the state.
Though Tamil Nadu is highly industrialised, other Indian states are shoring up their acts in wooing industrial investments.
Seshadri said the industrial investors are losing confidence in Tamil Nadu owing to ‘agitation industry’ or agitation politics played by DMK and its allies while in the opposition.
“The DMK while in power will bring in industrial investments. And when it is the opposition, the party along with allies and other organisations will resort to agitations against the same industrial projects it had brought in while in power,” Seshadri said.
The shutting down of the Sterlite Copper plant not only erased the investors confidence, but also a steady tax revenue of about Rs 8,000 crore to the state, Seshadri said.
When pointed out that Sterlite Copper was shut down on pollution grounds and even the Supreme Court had ordered its closure Seshadri said: “It is the state government that has to see factories do not pollute.”
Similarly, the allies of the ruling DMK party and other organisations are opposed to projects like nuclear power projects, India based Neutrino Observatory, Colachel Port and others.
“The DMK party and its allies opposed the Chennai-Salem Expressway when the AIADMK was in power. Now that the DMK is in power, it wants to implement the project which in turn sends conflicting signals to the investors,” Seshadri said.
Stressing that widening of the tax base will happen only when industrial investments happen in the state Seshadri said the proposed investment by Hyundai Motor India is only an expansion and modernisation and no major greenfield investment has happened.
While the AIADMK and the DMK governments have inked Memorandums of Understanding (MoU) with several industrial groups, the conversion of those MoUs into actual investments is not majorly happening.
The contribution of the high profile committee of economists formed by the DMK government soon after it came to power is not seen much as hike rates and charges are no-brainer actions.
Seshadri has good words for the former Finance Minister Rajan who was recently shifted to a different department.
“I would rate Palanivel Thiaga Rajan at 8 on a scale of 10 points. He brought in transformational change in the system. He questioned every expenditure and was able to reverse the revenue deficit,” Seshadri said.
Seshadri said Rajan had openly voiced about the leakage in the system – for instance sale of liquor out of the state retail outlets- which resulted in huge loss of revenue to the state.
“The leakage in the liquor sales could be about Rs 25,000 crore to Rs 30,000 crore. If this is brought under the system then the government can cut down its borrowings and boost the revenue which could be spent on productive purposes,” Seshadri remarked.
Seshadri said to avoid falling into a debt trap and continue borrowing to pay old debt, Tamil Nadu should widen its tax base, invest in infrastructure, target the subsidies to the needy and prevent the leakages in the system.
(Venkatachari Jagannathan can be reached at v.jagannathan@ians.in)
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