Budget Speech 2002 - 2003

FISCAL AND BUDGETARY REFORM PROGRAMME

12.             Medium Term Fiscal Reform Programme: The State Government has prepared a Medium Term Fiscal Reform Programme, aimed at bringing down the revenue deficit to zero and fiscal deficit to 2 percent of the Gross State Domestic Product (GSDP) over a period of five years. A Memorandum of Understanding is to be signed with the Union Government to enable us to access funds to the tune of Rs.402 crores over the next five years, from the Fiscal Reform Facility, constituted on the basis of recommendations of the Eleventh Finance Commission.

13.             Administrative Reforms: The salary and pension liabilities comprise a major component of the total revenue expenditure of the State Government. We have already announced our commitment to a need-based reduction in the staff strength in a phased manner. Guidelines for rationalization of the staffing pattern in the Government are being evolved to ensure optimal utilization and deployment of manpower.

14.             Tamil Nadu has the highest pension-related commitments when compared to other States in the country. It is also one of the fastest growing components of the total revenue expenditure. It has already been announced that all employees recruited from December 1, 2001, will be governed by a new contributory pension scheme similar to the one being formulated by the Union Government.

15.             The Government has constituted the Staff and Expenditure Review Commission under the chairmanship of Thiru A.M. Swaminathan (IAS retd.). The Commission has already submitted three interim reports.  The Government has taken decisions in respect of two of these reports pertaining to reorganisation of departments in the Secretariat and measures to control administrative expenditure.  Orders in respect of these decisions are being issued.

16.             Zero-Base Budgeting and rationalization of subsidies, block grants and grants-in-aid to institutions: All administrative departments have been instructed to undertake a Zero-Base Budgeting exercise to weed out schemes that have outlived their purpose. Such an exercise will enable the transfer and relocation of resources from non-productive schemes to the productive ones.

17.             Untargeted and open-ended subsidy schemes have played havoc with the finances of the State Government. All the departments have been instructed to re-calibrate the existing schemes suitably to ensure that the intended benefits are targeted to the needy and most deserving sections of the population.

18.             Block grants or grants-in-aid being given to various institutions are being reviewed. The financial support to private and aided institutions, receiving grants-in-aid from the School Education Department, will be frozen at current year levels. The financial support to Universities and aided colleges will be gradually phased out and they will be encouraged to focus on internal resource generation through consultancies, economizing expenditure and collection of nominal user charges, protecting the interests of poor students. 

19.             Reforms in the Public Distribution System: With a view to weeding out bogus family cards in circulation, it has been decided to introduce a "Coupon System" for drawal of rice under the Public Distribution System from 1st July, 2002 onwards.  Under this coupon system, `rice drawal coupons' for one year will be distributed to the rice cardholders.  Payment for rice need not be made while collecting the coupons.  These coupons will have to be presented together with the ration card while buying rice from the fair price shops.  This system is expected to prevent bogus billing and consequent large-scale diversion. 

20.             Government Guarantees:  The State Government has been providing guarantees to lending agencies for loans taken by statutory corporations, public sector institutions, co-operative institutions etc. This implies that in case the borrowing institutions fail to meet their repayment commitments, the Government will clear the guaranteed dues.

21.             The Government is viewing the outstanding guarantee liabilities with concern and will be introducing legislation aimed at restricting the total guarantees authorized by the State Government to a specific percentage of its revenue receipts. The guarantees will be given based only on the viability and bankability of the projects, as per Reserve Bank guidelines.  We propose to constitute a Guarantee Redemption Fund to ensure prompt payment of the guaranteed liabilities in cases of invocation by lending agencies. In cases of institutions, which fail to honour their repayment liabilities for loans taken against a State Government guarantee, renewal or issue of fresh guarantees will not be permitted.

22.             Debt Management:  Long-term loans such as those extended by the Central Government and other internal debt sources comprise nearly two-thirds of the fiscal deficit of the State Government. The rest is financed through public account balances, which include small savings and State Provident Funds. The Government is very concerned over the unprecedented growth in the outstanding public debt and interest payment liabilities over the last few years.  

23.             We welcome the announcement of the Union Finance Minister permitting the State Governments to go in for debt substitution so as to replace the high-interest outstanding loans from the Government of India and other financial institutions, with low-interest loans. The Union Planning Commission will also be requested to increase the annual allocation of open market loans for Tamil Nadu mobilized through the Reserve Bank of India so that the State can benefit from the currently prevailing low interest rate regime.

24.             Reforms in the Public Sector and Co‑operative institutions: The Government has announced its decision to disinvest its stake in profit making State PSUs and also go in for an outright sale of loss making units. A Disinvestment Commission will be constituted to frame the guidelines for the disinvestment in the profit making and privatization of loss-making State PSUs and co-operative institutions. A Public Sector Reform Programme, which includes an attractive Voluntary Retirement Scheme (VRS) for Government employees and those in the PSUs and co-operative institutions, is being formulated and will be posed to external agencies for funding.

25.             Reforms in the Transport Sector:  Honourable Members are well aware of the poor financial position of the State Transport Undertakings (STUs) in Tamil Nadu. This Government has decided to go in for a phased privatization of select routes, services and operations currently under the control of STUs. A High Level Committee will be appointed to work out the modalities for phased privatization on the above lines and restructuring of STUs, which will be required to submit its report within three months. 

26.             Power Sector Reforms:  The Government is committed to making the Tamil Nadu Electricity Board (TNEB) a self-supportive and commercially viable enterprise while protecting the interests of our people. The State Government has signed a Memorandum of Understanding (MoU) with the Government of India on 9.1.2002 that envisions far-reaching reforms in the power sector. The salient features of this MoU are as follows:

Ø            It has been decided to securitise the outstanding dues of TNEB wherein the Government of Tamil Nadu will float tax-free bonds with an interest rate of 8.5 percent to fund a one-time settlement of dues with the Central utilities.

Ø            The State Electricity Regulatory Commission (SERC) will be activated by the State Government.

Ø          Comprehensive metering of all electricity connections provided by the TNEB in the State will be taken up and this exercise will enable the TNEB to check power theft and calculate transmission and distribution losses.

In turn, the Government of India has promised us financial assistance to renovate, modernize and upgrade transmission and distribution networks and also the old thermal/ hydel power stations by making available funds under the Accelerated Power Development Programme.

27.             Budgetary Reforms: The process of fiscal reforms will be incomplete without adequate reforms in procedures relating to the process of Budget formulation and its execution. This Government will take necessary action to solicit views from all – experts, interest groups and the people – while taking budgetary decisions. The official website of the Government of Tamil Nadu, www.tn.gov.in, will be upgraded and made interactive.

28.             The process of Budget formulation is being further streamlined in consultation with the Estimates Committee of the Legislative Assembly. We will be moving into a system of Heads of Department-wise Budgeting from this year.  Necessary action is being taken to simplify the procedures, strengthen cash management and to ensure flexibility and dynamism in the implementation of the Budget.

29.             We have a difficult task of blending hard decisions on account of economic compulsions with those necessary to protect vital interests of the vulnerable sections of society. There cannot be two opinions on the urgent need to rectify the fiscal imbalance before it completely paralyses the functioning of the Government. Fiscal recovery is in the best interests of the State and has to be above political differences, compulsions and expediency. We have tried to be as open as possible in this endeavour and would welcome constructive suggestions on other better ways of dealing with this serious problem.