TN is in red, biggest borrower with public debt of `2.63 lakh/family: Govt

Chennai: Tamil Nadu's fiscal situation is in dire circumstances and business as usual attitude cannot continue as there are no buffers left and no fiscal headroom that would allow delay, said a white paper released here on Monday by state Finance Minister Palanivel Thiaga Rajan.

The serious fiscal scenario is in part due to extraneous circumstances, but in substantial measure due to structural flaws in governance which have not been rectified in a timely manner, the first such report by the DMK government after it assumed office in May said.

The worsening deficit situation has led the state to be over-reliant on debt and the public debt is Rs 2,63,976 per family in Tamil Nadu.

The DMK had often targeted the AIADMK rule while in opposition for mismanagement and the ruling party had promised a white paper on fiscal situation for ensuring "transparency." The report said the Covid-19 pandemic has greatly exacerbated the situation and highlighted how vulnerable Tamil Nadu currently is. "There are no buffers left. No fiscal headroom that will allow for delay."

"Business-as-usual (attitude) cannot continue, and our approach must fundamentally change if we are to break out of this vicious cycle of increasing debt and interest costs.

On the other hand, this is an opportunity to effect once in a generation reforms, many of which should have been undertaken years ago by any responsible government."

The white paper says the fiscal position of Tamil Nadu has been deteriorating for the past eight years and such a long-term trend has affected development investments which in turn has affected growth.

Between 2006-13, in five out of seven years, TN had a net revenue surplus. However, since 2013, revenue deficit has become a recurring phenomenon.

DMK was in power during 2006-11 and AIADMK from 2011 to 2021. Tamil Nadu's Revenue Deficit (RD) stands at Rs 61,320 crore (FY 2020-21) which is, 3.16 per cent of Gross State Domestic Product.

The average RD for all states and UTs was 0.1 per cent of GDP in 2017-18 and 2018-19, and for TN it was 1.5 per cent and 1.4 per cent of GSDP respectively.

The Fiscal Deficit (FD) of the state for FY 2020-21 is Rs 92,305 crore (4.43 per cent of GSDP).

"The current levels of fiscal deficit are unsustainable primarily because a substantial portion of the fiscal deficit is simply to fund the revenue deficit."

The ratio of RD as a percentage of FD is 52.48 per cent for 2016-21 and it was just 14.94 per cent in 2011-16.

This rising trend of revenue-deficit-driven fiscal deficits "must be funded mainly by borrowing," which has sharply increased the total debt outstanding. The period since 2012-13 has seen a continuous increase in the overall debt level of the state government.

It is expected to reach Rs.5,70,189 crore on March 31, 2022 as per the Interim Budget Estimates of 2021-22 and accordingly, "public debt as a percentage of GSDP is 26.69 per cent. It is worthwhile to note that, the public debt as a percentage of GSDP was 18.37 per cent in 2007."

The total outstanding debt in Revised Estimates 2020-21 is Rs.4,85,502.55 crore which is already 24.98 per cent of GSDP. TN's outstanding liabilities as a percentage of GSDP are significantly higher than comparator states of Maharashtra, Gujarat and Karnataka.

"Tamil Nadu has the dubious distinction of currently being the largest borrower in the open market amongst all states in India." Almost every state has reduced the public debt-GSDP Ratio between 20032019. Tamil Nadu was also following the trend by reducing the ratio from 26 per cent to 17 per cent until 2012. However, the situation has been worsening

since then.