PTR roots for 'once in a generation' reforms to set right Tamil Nadu finances

Tamil Nadu’s fiscal situation is in “dire circumstances” substantially due to “structural flaws in governance” which have been not been rectified in a “timely manner”, Finance Minister P T R Palanivel Thiaga Rajan said on Monday releasing the much-awaited White Paper on the state’s finances.

The White Paper, one of the poll promises of the DMK, projected the overall outstanding debt of the state at Rs 5.7 lakh crore as of March 31, 2022, which means the burden on every citizen in the state is around Rs 70,000. If one adds the debt that the transport corporations and electricity department have accumulated over the years, the burden is pegged to be at Rs 1.10 lakh for every citizen, according to the white paper.

‘Lack of political will and administrative skill’

Thiaga Rajan, a former investment banker who worked with some of the top global financial institutions, attributed a “lack of political will and administrative skill” as the reason for Tamil Nadu turning into a deficit state in the past seven years from being revenue-surplus or revenue-neutral.

Explaining the broad contours of the 112-page report in a press conference that lasted for 2.5 hours, Thiaga Rajan pushed for fundamental, structural and profound reforms to break the “vicious cycle” of increasing debt and costs.

He exuded the confidence that the DMK government will “reverse the wrongs” of the past seven years in “five years”, maintaining that Tamil Nadu was a “rich state” with huge assets. He did not rule out asset sales to generate more revenue, while he advocated for urgent reforms to plug the leakages in the current system.

Acknowledging that things were fine to an extent as long as J Jayalalithaa was in “complete control” of administration, the report laid much of the blame for the financial mismanagement on later part of the 2011-2016 AIADMK administration and the EPS-OPS regime from 2017-2021.

From a revenue surplus state to a revenue deficit state

Out of 7 years from 2006 to 2013, Tamil Nadu registered net revenue surplus for five years and revenue deficit became a recurring phenomenon since 2013, Thiaga Rajan said, adding that the state’s finances plunged into an all-time low even before the word Covid-19 came into existence.

“No other state’s finances have gone down so much in the country like in Tamil Nadu…the revenue deficit of the state for 2020-2021 fiscal stands at Rs 61,320 crore which is 3.16 per cent of Gross State Domestic Product (GSDP) which is more than the entire normally permissible fiscal deficit,” he said, adding that this leaves the state in an “unsustainable fiscal situation”.

Principal opposition AIADMK termed the white paper as “one with full of lies”, while former Chief Minister Edappadi K Palaniswami there was nothing surprising in the DMK releasing such a document. AIADMK’s ally PMK asked the Finance Minister to come out with pragmatic ideas to generate more revenue for the state.

Batting for revision in property and road taxes

Pointing out that property tax and road tax have not been revised for a long time in the state, the Finance Minister suggested that increasing revenue by effecting a hike was one of the solutions to get out of the financial crisis.

In the same breath, he also suggested that the hike may not be immediate as he said the revised Budget he will present to the Tamil Nadu Assembly on August 13 will show the path for the much-needed reforms.

“Take from the few and give to the many in a fairway. You should see where we take and where we give. Our commitment to the upliftment of poor and social justice remains undiluted,” he said, pushing his case for taxing the rich more in order to uplift more people who are still at the lower strata of the society.

In yet another strong hint that a hike in property and other taxes can be expected in the long-term if not immediately, Thiaga Rajan opposed the idea known as “zero tax.” “If the government does not tax the right amount of tax from the right people, where will it generate revenue. Zero Tax is a bad idea,” he added.

‘White Paper will not come in the way of fulfilling poll promises’

The Minister also asserted that the DMK dispensation will not cite the White Paper as an excuse to run away from implementing poll promises.

“This report is not an attempt to create a rationale for diluting or abandoning the commitments the Chief Minister has made to the people. We stand by our commitments,” Thiaga Rajan said. He also added that now was the time for effecting “once in a generation reforms” many of which should have been undertaken years ago by “any responsible government.”

On more than one occasion during the long presentation, Thiaga Rajan said a uniform property tax for those living in bungalows and in colonies is not the right policy while flagging his concerns over universalisation of cash subsidies. He pointed out that many well-to-do people who have also received Rs 4,000

He said TANGEDCO loses Rs 2.36 per power unit that is consumed, while the accumulated debt of the power and transport sector put together stand at around Rs 2 lakh crore.