Tamil Nadu budget: Fiscal deficit may widen by 5% of GSDP to Rs 96,890 cr

State tax revenue seen declining by 18%, says Deputy CM and Finance Minister Panneerselvam, while presenting interim budget

Tamil Nadu's tax revenue declined by 18 per cent, at about Rs 1 trillion in 2020-21 as per the revised budget.

In the aggregate, the State-owned tax revenue (SOTR) is expected to be Rs 1.09 trillion in the revised estimates, down 18 per cent against Rs 1.33 trillion anticipated as revenue in the budget estimates.

The interim budget was presented by Tamil Nadu Deputy Chief Minister and Finance Minister O Panneerselvam today.

The state, like all other domains, was under intense lockdown for nearly six months before the unlocking started.

The government’s fiscal deficit is expected to be widen to Rs 96,889.97 crore, which is five per cent of its GSDP. 

The State government will be crossing the 3 per cent line of fiscal deficit for the second time in the past five years. In 2017-18, the fiscal deficit crossed 4 per cent as the government took over a part of Tangedco’s debt as per the UDAY scheme.

With the revenue declining, the government had to borrow from various sources to pay salaries, pension and also spend on the health and welfare department to prevent the spread of Covid-19.

Over a Debt outstanding as on March 31, 2021 is estimated to be Rs 4.85 trillion and as on March 31, 2022 is Rs 5.70 trillion.

Debt-GSDP ratio of the State as of March 2021 will be 25 per cent, as of March 2022 it will be 27 per cent, which will be within the norms prescribed by the 15th Finance Commission.

The state government expects the revenue deficit in 20-21 estimated to be Rs 65m994 crore which is large increase over the Rs 21,617 crore project in Budget estimates 20-21.

The State which is scheduled for Assembly elections in April or May, allocated Rs 5,000 crore in the Interim Budget 2021-22 for farm loan waiver that was announced recently by the Chief Minister.

For sgriculture sector the Government allocated Rs.11,983 crore in the Interim Budget Estimates 2021-22 (Rs 11,894.48 crore last year).

Explaining the reason that the Tamil Nadu Government had to resort to higher borrowings, Deputy Chief Minister O Panneerselvam, who also holds the finance portfolio in the state, said the Covid-19 pandemic has caused a sharp drop of revenue, but expenditure levels had to be enhanced to protect people's welfare. 

"Hence, it is completely unavoidable that the Government had to resort to borrowings resulting in a higher fiscal deficit," said Panneerselvam, while announcing the Tamil Nadu budget.

He explained that due to the lockdown, the State Government's revenue could not meet the anticipated target of the Revised Estimates 2019-20. As a result, the fiscal deficit for 2019-20, which was targeted at Rs 55,058.39 crore or 2.97 per cent of GSDP in the Revised Estimates 2019-20, expanded to Rs 60,178.63 crore, or 3.24 per cent, in the 2019-20 accounts. 

"As the Members of the House are aware, the Tamil Nadu Fiscal Responsibility Act, 2003 has already been amended to accommodate this increase in the overall deficit," Panneerselvam said. "With the Covid-19 pandemic, the State Own Tax Revenue (SOTR) collapsed in the first four months of the current financial year due to the lockdown and the additional time provided for remittance of tax dues."

However the collection of State GST and VAT have started picking up from August 2020, he added.