The growing revenue deficit of Tamil Nadu, highlighted by Leader of the Opposition and AIADMK general secretary Edappadi K. Palaniswami in his recent counter to Finance Minister Thangam Thennarasu’s criticism of the AIADMK, looms large over the State government.
This is evident in the government’s mid-term review of the financial position.
According to the official document, which was placed on the floor of the Assembly last month, the revenue deficit has mostly been on the rise since 2013-14. It was in 2012-13 that the State had last posted a revenue surplus, which was around ₹1,760 crore.
Talking about the concept of revenue deficit, the White Paper presented by the DMK government in August 2021 says: “Normally, revenue receipts should exceed revenue expenditure so that the balance could be used for financing capital expenditure. But, if the revenue expenditure exceeds revenue receipts, the shortfall is called revenue deficit. This gap has to be bridged by either resorting to withdrawal of cash reserves or through borrowings.”
The revenue deficit reached a peak in 2020-21 — the COVID-19 pandemic year — when the receipts went down substantially and the expenditure rose. In 2021-22 and 2022-23, the deficit saw a southward trend, but this turned out to be an aberration.
From 2023-24, the deficit has been on the rise again, raising the question whether, and when, the State would have a revenue surplus.
In the budget document presented to the House last year, the government had pushed further the year when it would post a revenue surplus by a year, and projected that in 2026-27, the State would have a revenue surplus of around ₹5,967 crore.
One of the factors that caused the hike in revenue expenditure is the implementation of Kalaignar Magalir Urimai Thogai Thittam — financial assistance of ₹1,000 per month to women — since September 2023.
Referring to this scheme, the mid-year review states that “taking into account the expenditure” for the scheme, the revenue deficit was estimated at ₹49,279 crore in the Budget Estimates of the current year. A sum of ₹13,720 crore has been set apart for the year. The government is under pressure to enlarge the coverage.
Broadly, three reasons are attributed for the widening gap between revenue receipts and revenue expenditure: “historical injustice” meted out by successive Finance Commissions, constituted by the Union government, in devolution of Union taxes; loss of ₹20,000 crore in view of the termination of the Goods and Services Tax (GST) compensation regime on June 30, 2022; and absorption of the losses of the Tamil Nadu Power Distribution Corporation, in addition to tariff subsidy.
During 2023-24, tariff subsidy and grants amounted to approximately ₹32,100 crore. Likewise, for 2024-25, around ₹9,700 crore has been set apart for the State Transport Corporations towards tariff subsidy.
To add to its woes, the State has been facing the wrath of nature in the form of floods year after year, causing increased revenue expenditure.
The associated problem with revenue deficit pertains to borrowings over which the government has been facing flak from the Opposition.
The debt outstanding, which was around ₹4.86 lakh crore at the beginning of 2021-22, is expected to touch ₹8.33 lakh crore by March 2025, meaning the government would have resorted to net borrowings of about ₹3.5 lakh crore in four years.
However, the government’s response is that all its borrowings are within the parameters of the 15th Finance Commission. The mid-year review states that for 2024-25, the Commission had recommended a ceiling of three percent of the Gross State Domestic Product (GSDP), with an additional borrowing space of 0.50%, contingent on the implementation of power sector reforms.
Accordingly, the total borrowings ceiling for 2024-25 has been fixed at 3.44% of GSDP, inclusive of the incentive-based extra borrowing space for power sector reforms, the document adds.
