APPENDIX

MEDIUM TERM FISCAL PLAN

1. 1.        The State has enacted Tamil Nadu Fiscal Responsibility Act, 2003 which was subsequently amended to bring it in line with the requirements prescribed by the Twelfth Finance Commission.  According to Section 3 (1) of this Act, the Government is required to place before the Legislative Assembly a Medium Term Fiscal Plan (MTFP) along with the Budget.  Section 3 (2) of this Act requires that the MTFP shall set forth a multi-year rolling target for the fiscal indicators like Revenue Deficit and Fiscal Deficit while clearly indicating the underlying assumptions made to arrive at those projections.  In compliance of this Act, a Medium Term Fiscal Plan based on current fiscal trends and policy initiatives undertaken by the Government has been prepared with the projections for the period 2009 - 2012 and it is being placed before the Legislative Assembly.  The Table which is appended sets out the Medium Term Fiscal Plan for the period 2009-2012.

Objectives

1. 2.        The Fiscal Responsibility Act prescribes that Revenue Deficit must be fully eliminated by  2008-2009 and Fiscal Deficit as a percentage of Gross State Domestic Product (GSDP) must not exceed 3% and both should be maintained thereafter.
2. 3.        The Eleventh Five Year Plan for the period 2007-2012 aims at achieving an economic growth of 9% per annum. Tamil Nadu will implement the Eleventh Five Year Plan with a total outlay of Rs.85344 crores. The Medium Term Fiscal Plan has to include the resource requirements for fully funding this plan expenditure.

Salient Features

1. 4.        As a result of the proposed implementation of the Sixth Pay Commission recommendations, the increasing expenditure on the various existing and new welfare schemes implemented by this Government, and the slow down in revenue growth due to global slow down, the State will not be able to achieve the target of maintaining a revenue surplus but will still restrict its fiscal deficit to 3% of the States GSDP.
2. 5.        The Medium Term Fiscal Plan has also taken into the account the felt and likely impact of the economic slowdown. It recognises the fact that the when private investment is slowing down, governments need to step in by increasing public expenditure on infrastructure and social sectors which would in turn, protect the poor and boost demand in the economy and thus preserve the momentum of economic growth.
3. 6.        A revenue deficit of Rs.1024.14 crores is estimated for the year 2009-2010.  This is only 1.7% of the overall revenue receipts for the year. Even this marginal deficit is expected to be transitory and the State is expected to again achieve revenue surplus in 2010-2011 and continue to be in surplus position in 2011-2012 as well. However,  in spite  of the present heavy fiscal stress, the Fiscal Deficit in 2009-2010 as a percentage of GSDP  will be 2.99% in the Budget Estimates 2009-2010 which is within the 3% limit fixed by the Act, and the Medium Term Fiscal Plan envisages that this ratio would be brought down to 2.73% during 2010-2011 and 2011-2012. 
4. 7.        The State is prudently managing its contingent liabilities.  The outstanding guarantees for each year have to be restricted at a level below 100% of the Total Revenue Receipts in the preceding year or below 10% of the GSDP whichever is lower.  The outstanding guarantee as on 31.3.2008  was 11.8% of Total Revenue Receipts and 1.9% of GSDP.  The outstanding risk weighted guarantee for each year has also to be kept at a level below 75% of the Total Revenue Receipts in the preceding year or 7.5% of GSDP whichever is lower.  The outstanding risk weighted guarantee as on 31.3.2008 stood at 3.7% of Total Revenue Receipts and 0.6% of GSDP.  It is proposed to restrict the issue of new guarantees and it will be ensured that the new guarantees are given only to productive and viable projects.
5. 8.        While substantially increasing the outlay on capital expenditure, sufficient provisions have also been made for maintenance of public assets as per the Twelfth Finance Commission recommendations. 

Future Prospects

Revenue Receipts

Share in Central Taxes

1. 9.         Share in Central Taxes for the State has been estimated at Rs.9096.21 crores during 2009-2010.  The fall in indirect tax  revenue of the Union Government due to the general economic conditions and the various tax concessions given by it to provide stimulus to the economy has led to an adverse impact on the State’s share in Central Taxes. This estimate is based on the Budget Estimates of Government of India for the year 2009-2010.  Budget Estimates for 2009-2010 assumes a 12.5% growth over this low receipts and the same growth is projected for 2010-2011 and  2011-2012.

State’s Own Tax Revenues

1. 10.    The Tax-GSDP ratio of the State is 9.8% and is one of the highest in the country.  State’s Own Tax Revenue is estimated at Rs.38,578 crores for 2009-2010. For the future years, the overall growth in the State’s Own Tax Revenue has been assumed at 12.5%.  The salient features of  the major components of the State’s Own Tax Revenue are discussed below.
2. 11.    The receipts under Commercial Taxes is estimated at Rs.24514.33 crores in the Budget Estimates 2009-2010.  This takes into consideration a growth of only 10.9% over the Revised Estimates 2008-2009. A growth rate of 12.5% has been projected for the future years.
3. 12.    State Excise Receipts has been estimated at Rs.6565.55 crores during 2009-2010.  This is 15% higher than the Revised Estimates 2008-2009.  For the future years, 13% growth rate has been assumed.
4. 13.    The slow down in the real estate sector has affected the revenue from Stamp Duty. The Revised Estimates for 2008-2009 is lower than the Budget Estimates by Rs.459.08 crores. The Budget Estimate for 2009-2010 is Rs.5,093.99 crores which is only Rs.205 crores more than the Budget Estimate for 2008-2009.  In the future  years, receipts under this head has been projected at a growth rate of  12%.
5. 14.    The receipts from Taxes on Vehicles has been projected at Rs.1994.4 crores for the next year. For the future years, growth of 12% has been assumed.

Non-Tax Revenue

1. 15.    Non-Tax Revenue is estimated at Rs.3404.27 crores in the  Budget Estimates  2009-2010.  The State’s Own Non Tax Revenue contributes only 5.8% of Total Revenue Receipts and there is not much potential to increase this component as most of the user charges has been collected and retained by various agencies who are providing these services.    Also, with a view to benefiting students, this Government has waived tuition and examination fees.  The interest receipts also will show a declining trend in the coming years in view of reduced lending by the Government to various Public Sector Undertakings and Statutory Boards.  Taking all these factors into consideration, Non-Tax Revenue has been projected to grow at only 5% in the future years.

Grants-in- Aid from the Union Government

1. 16.    The projections have been made taking into account various grants recommended by the Twelfth Finance Commission for local bodies, State specific needs, Calamity Relief Fund and Maintenance and other transfers from Union Government like Compensation for loss on account of VAT.  The grants accruing on account of Externally Aided projects sanctioned before 1.4.2005 have also been reflected in the projection for receipts under Grants in Aid.  Totally, this Grants-in-Aid from the Government of India  has been  estimated at Rs.7,192.66 crores in the Budget Estimates 2009-2010.

Revenue Expenditure

1. 17.    The revenue expenditure during 2009-2010 is estimated at Rs.59,295.28 crores which shows a growth of 7% over Revised Estimates 2008-2009.  This is mainly on account of filling up of vacant posts in various departments, additional expenditure for the implementation of new schemes of the Government and on account of higher expenditure on salaries and pensions due to Sixth Pay Commission Recommendations.
2. 18.    Salary and pension as a percentage of State’s Own Tax Revenue will be 79%  and the same as a percentage of State’s Total Revenue Reciepts will be 52%.
3. 19.    The Government will continuously monitor the sustainability of the debt stock and Medium Term Fiscal Plan envisages to keep the ratio of interest rates to Total Revenue Receipts below 15% as recommended by the Twelfth Finance Commission.

Outcomes

1. 20.    The State has achieved all the targets as per FRBM Act in 2007-2008 and expect to do it in 2008-2009 also.  Although the State faces a marginal revenue deficit in 2009-2010, it will achieve the overall fiscal deficit and all other targets and it is expected that the all fiscal targets will be achieved in the future years also.   The Fiscal Responsibility Act will be suitably amended, if necessary.
2. 21.     While containing the Fiscal Deficit at below 3% level, a record capital outlay of Rs.10,071.89 crores  is provided in the Budget Estimates 2009-2010.
3. 22.    The scope of social safety net has been vastly enlarged and the total outlay of social safety net has been increased to Rs.15519.63 crores in 2009-2010.
4. 23.    Provisions for maintenance of existing assets have been provided for as per the Twelfth Finance Commission recommendations.  The outlays on Education, Nutrition and Health have been increased significantly.  These outlays would be ensured during the future years also.
5. 24.    The State will achieve all the targets set under this Revised Medium Term Fiscal Plan which is presented now.

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