Budget Speech 2002 - 2003

FISCAL POSITION

3.                 Tamil Nadu has enjoyed the distinction of being a financially well-managed State with a very impressive performance in the economic and social sectors when compared to the all-India standards. However, there has been a steady deterioration in the finances of the Government in the last few years, which now threatens to derail the fiscal stability enjoyed in the past.

4.                 The growth in receipts of the Government comprising Central resource transfers and our own tax and non-tax revenues have failed to keep pace with the unprecedented rise in revenue expenditure since 1998 mainly towards employee compensation (salary and pension), interest payments and subsidies. In order to cover this mismatch, the Government in the past resorted to heavy borrowing to finance the revenue gap. The net result is an alarmingly high and unsustainable revenue deficit and fiscal deficit.

5.                  An analysis of the sectoral distribution of Government spending shows that over the years, there has been a perceptible decline in the shares of expenditure on social and economic services as against general services comprising basically interest payments and administration. This skewed nature of resource allocation in favour of current expenditure has unwittingly crowded out Government investments in asset creating ventures. The poor performance of the Public Sector Undertakings has further compounded the problems.

6.                 The current year has posed one of the toughest challenges to the Government.  Honourable Members are aware that the State is suffering a loss of Rs.2946 crores over the five-year period 2000-2005 because of the injustice meted out to the developed States, including Tamil Nadu, by the Eleventh Finance Commission.  When we presented the Budget in August last year, we explained the state of Government finances through the White Paper and invited suggestions from the Honourable Members and the public.  Based on the valuable input given by the Honourable Members during discussions within the House and outside and the suggestions given by innumerable members of the public and also taking into account the fast deteriorating state of finances, the Government announced a series of measures to augment revenues and cut non-plan expenditure. However, these efforts proved to be insufficient.  The decision of the Union Government to reduce our share in central taxes in 2001-2002 by Rs.512 crores over and above the reduction already suffered on account of the implementation of the Eleventh Finance Commission's recommendations was an additional burden which could not be foreseen.  The general recession in the national economy, particularly in the manufacturing sector, also had a very adverse impact on the tax collections of the State Government.

7.                 Given the unprecedented resource constraints, this Government was forced to scale down the approved plan outlay for the current year to a realistic level of Rs.5200 crores. The details of the aggregate Plan outlay of Tamil Nadu for the Tenth Plan Period (2002-2007) and also for the next financial year will be announced after discussions with the Union Planning Commission.

8.                 Honourable Members are well aware that despite the federal nature of our Constitution, the powers of the State Government in raising resources are very limited and we have to always look to the Centre for financial support. But when the Union Government fails to maintain the committed budgetary devolutions to the State and also does not adequately compensate us for this loss, we have nobody to look up to. Perarignar Anna, while speaking on the floor of the Rajya Sabha,  had very clearly summed up the dilemma as follows:

“The working of the federal structure all these years has created a frustration in the minds of the States. They feel that States are fast becoming dole-getting corporations.”

The Central Government should come forward and devolve more financial powers and resources to the States. Almost all the States in the country are facing resource constraint of an unprecedented magnitude.  Consequently many States have been forced to cut their plan outlay in the current year resulting in a slowdown in the pace of development.  Only when the States are financially strong will India, as a nation, prosper.  Given the serious situation, our Honourable Chief Minister has taken the lead and requested the Honourable Prime Minister to evolve a one-time assistance package for all the States to enable them to come out of this crisis.  Tamil Nadu's requirement in this regard has been assessed at Rs.3000 crores and we hope that our Honourable Chief Minister's request for this assistance in the form of a grant to put Tamil Nadu back on the road for development will be considered favourably by the Government of India.

9.                 The Union Finance Minister, Thiru Yashwant Sinha, while presenting the Central Budget for 2002-2003, announced that the rate of interest at which the Government of India extends loans to the States would be reduced from the next financial year. We welcome this announcement. The decision to pass on the entire small savings collections to the States may not translate into real and tangible benefits because of a sharp reduction in the rate of interest on small savings instruments.

10.             We strongly oppose the Union Government’s decision to impose a 5 percent surcharge on all taxes for meeting the defence requirements. National defence is a core subject of the Central Government and has to be met from its revenue receipts. We hope that the Union Finance Minister will rescind the implementation of the surcharge as this would eat into the limited resources likely to be devolved to the States during the next financial year.

11.             Without a visible improvement in the State’s finances, no Government can honour its mandate and fulfill the aspirations of the people. The pace of fiscal recovery will depend on how fast we are able to restrict the alarming pace of growth of the revenue expenditure, without jeopardizing the interests and welfare of the vulnerable sections of our society.  I would like to begin by outlining the fiscal and budgetary reform programme to be pursued by the Government in the next financial year. The main objectives of these reforms include the following:

Ø            Slowing down the pace of growth in revenue expenditure.

Ø            Enhancement of receipts to the Government.

Ø            Reining in the unsustainable revenue deficit and fiscal deficit.

Ø            Reprioritization of resource allocation in the State Budget from non-productive areas to production oriented sectors like agriculture, industry, infrastructure development, health, education etc., so that the Government’s investments translate themselves into real benefits for the people.