The Tasks Ahead

I must say Mr. Thiagarajan has begun reasonably well. His speech in the GST meeting had its share of rhetoric but I completely agree with him that the states should have more financial powers. His example of what Mr. Modi demanded when he was the Chief Minister of Gujarat was quite apt. His spat with the Goa’s finance minister shows his arrogance remains as incandescent as ever. As a minister of a big state he should have been more graceful.

In any case, speeches are not going to take care of the finances of Tamil Nadu. It is common knowledge that the financial condition of the state is pathetic. Let us make a survey of it:

1. Around 65% of the income of the state is spent on salaries, pensions and interest payment.
2. In addition to the existing subsidies and concessions, DMK’s election manifesto has announced a host of other measures. This means that the Government will have very little money left for either infrastructure or job creation activities.
3. It is a well known fact that the Tamil Nadu Generation and Distribution Corporation is running at a huge loss. Its borrowings are around 110,000 Crores and its loss in the financial year 2019-20 is around 12,600 crores. Yes, Tamil Nadu will be a surplus power state for some more years, but a bleeding TANGEDCO will be a drain on the finances of the state.
4. The overall outstanding debt of Tamil Nadu as of March 31, 2021 is around ₹4,85,000 crore which will balloon to ₹5,70,000 crore in March 2022. Though this might be well within the norms prescribed by the 15th Finance Commission, the debts are huge and they are getting huger.
5. The Covid-19 crisis has crippled the economy of India but its effect on industrialized states like Tamil Nadu will be of a much higher order. Tax collections are likely to take a big blow and the state, in all likelihood, will be facing a financial crisis, rarely seen in its history. The Business Standard says that 97% of Indians are poorer post second wave and there is a steady fall in the salaried jobs. Tamil Nadu cannot be an exception to the general trend. When people are losing their regular income, it is natural that their consumption will shrink and so will the indirect taxes that they pay to the government.
6. The service sector which contributes around 55% of the economic activity of the state was fortunately not much affected, relatively speaking, during the first wave, but that may not be the case during the second wave. In any case, the growth in this sector is already plateauing. It is good to keep in mind that even when things were not very bad, the employment generation in Tamil Nadu was anemic. For instance, in the period between September 2017 and October 2019 only 50000 formal jobs were created.
7. 179 projects at a cost of Rs. 8.6 lakh crore relating to Tamil Nadu have been included in the national infrastructure pipeline. These projects are to be implemented in the five years between 2020 and 2025. The Covid-19 crisis must have delayed them considerably.
8. There is nothing that the state can do in the matter of debt repayment, but it might have to bite the bullet in respect of salaries and pension payment, which may cost the DMK dear, politically speaking. Add to this, the likely clamour from the people that the welfare measures promised in the manifesto be implemented, the cup of woe of the government will be overflowing.
9. Yes, Tamil Nadu is still an Industry-friendly state. Yes, Stalin has clearly said there is no room for corruption during his tenure. Yes, there will certainly be private companies willing to invest in Tamil Nadu. However, incessant sabre-rattling, shrill and vacuous publicity and submitting to the Nazi elements in the party will chase the investors away.

The new finance minister has a very tough, though not an insuperable, task ahead.