Deputy Chief Minister O Panneerselvam presented the interim budget for the year 2021-22 on Tuesday.

OPS and EPS with the budget documents in TN Secretariat in 2020File image/PTI
news TN Budget 2021 Tuesday, February 23, 2021 - 18:28

The AIADMK government in Tamil Nadu presented its last budget for this term on Tuesday. Deputy Chief Minister O Panneerselvam was all smiles as he read out the interim budget for the year 2021-22 for the state of Tamil Nadu amid applause from his colleagues at Kalaivanar Arangam in Chennai. Two main aspects of the budget that stood out are the fiscal deficit of the state, which is expected to be around Rs 1 lakh crore by March 31, 2021, and the overall debt burden of Tamil Nadu, that is expected to touch Rs 5.7 lakh crore by March 31, 2022.

“The overall debt outstanding as on March 31, 2021 is estimated to be Rs 4,85,502.54 crore and as on March 31, 2022, it is estimated to be Rs 5,70,189.29 crore,” OPS stated. He added that the fiscal deficit in the Revised Estimates 2020-21 is expected to widen to Rs 96,889.97 crore which is 4.99% of the Gross State Domestic Product (GSDP).

Minutes after the speech concluded, Leader of the Opposition MK Stalin critiqued the budget by tweeting that the AIADMK government led by Edappadi K Palaniswami and O Panneerselvam has led to a high debt for Tamil Nadu at Rs 5.7 lakh crore. He further stated that when DMK had ended its tenure, it had left the government on a surplus budget and the 10-year rule of the AIADMK has pushed the state to a position of deep debt.

TNM spoke to economic and financial experts to understand how to understand these numbers provided in the state budget.

‘Fiscal deficit is a relative number’

Fiscal deficit is the difference between a government's budgeted inflows and budgeted expenditure. G Saimukundhan, a Chennai-based Chartered Accountant, says that almost all countries across the globe present deficit budgets. “Governments always borrow money and use them to make all the planned expenditure. In general, fiscal deficit is not bad,” he explains.

As per Tuesday’s budget, the fiscal deficit of the government of Tamil Nadu is expected to be Rs 96,889.97 crore, around 4.99% of the GSDP, by the end of financial year 2020-21. The Deputy Chief Minister also added that this is within the 5% of the GSDP recommendation of the 15th Finance Commission. 

Venkatesh Athreya, an economist, explains that it is important to view fiscal deficit as a percentage of the state’s GDP and not as an absolute number. “The absolute number is not really important. This number must be seen as a share of the state's GSDP. Fiscal deficit is a relative measure, not an absolute measure,” he says. Adding that the obsession with the fiscal deficit is silly, especially in a pandemic year, Venkatesh Athreya says that government expenditure can raise demand and rev up the economy.

‘No way for states to generate revenue’

Venkatesh Athreya slams the Union Government for having snatched the means of revenue for the state governments. “The Union government has taken away all resources from the state and dumped all expenditure on the state governments. The Union government is further levying surcharges which they don't have to share with the states. The criminal in this case is the Union government. State governments are particularly vulnerable because there are far fewer resources to raise money, especially post GST,” he points out. He adds that the pandemic, which was unexpected, ended up in the state governments bearing a large chunk of expenses.

“GST stripped the state government of all powers to tax except for four items. And these (state governments) are elected governments. The dispensation we have in this country is atrocious and unfair,” he adds.

Focus on how borrowings are used

Both the experts unanimously say that the key focus should be on how the money borrowed is being used by the government.

Saimukundhan points out that the fear around borrowings arise from the fact that when the governments borrow too much and default on repayment, the economy will be a shambles. “Borrowing is not a bad thing. But the key question is what is that money spent on? Borrowing should ideally go for development infrastructure. Underlying point is that whatever is being borrowed should go for development, which will eventually generate returns, and not for expenses,” he explains. He also adds that due to coronavirus, every country is borrowing money and has deficit budgets, and Tamil Nadu has also done the same.

On the other hand, Venkatesh Athreya says that the first option for any government to raise money should be by taxing the rich. Borrowing must be a secondary option, he says. “But, borrowing, per se, is not necessarily bad. It depends on what is done using the borrowed resources, how it is utilised, can it repay for itself or not etc. In India, we have a very disproportionate share of indirect taxes that are independent of the personal level of income. Indirect taxes fall disproportionately on the poor. Any civilised society must seek to raise the revenue by taxing the well-to-do.” He adds that a large fiscal deficit is warranted when the economy is down. 

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