Oil, global downturn, Centre's revised sharing pattern impact TN finances

Unlike other states, Tamil Nadu did not hike sales tax to adjust the fall in petroleum prices

The global downturn during the past two years, the fall in petroleum prices, slowdown in the manufacturing sector and the revised sharing pattern in the centrally sponsored schemes were the major factors that resulted in the revenue deficit in Tamil Nadu's State Budget, said a senior official from the State government.

Speaking to reporters after the State Finance Minister O Panneerselvam presented the interim budget for 2016-17, K Shanmugam, additional chief secretary to Government, Finance Department, said, "Tamil Nadu is not the only State which is facing a revenue deficit. The global slowdown has been affecting the growth rate since 2013-14 and we had to bring down the expected revenue growth predicted in the last budget".

He said that while the tax growth was expected in the range of 15-20 per cent, it was only around 10 per cent. For a state like Tamil Nadu, the downturn in manufacturing industries such as cement, steel, iron and others has also affected revenue. Besides petroleum product prices have been repeatedly revised downwards from November, 2014 and retail prices are also seeing a downward trend.

The drastic fall of international crude oil prices in the last one and half years and consequent reduction in the sales tax realistion on these petroleum products has reduced the state's tax revenue by Rs 4,000 crore per annum.

With the drop in prices, the revenue from VAT imposed on these products, which is 27 per cent in Tamil Nadu at present, has seen a drop. While almost 15 states, including Delhi, have increased sales tax on petrol and diesel to compensate their loss in the cess due to falling prices, Tamil Nadu did no such revision. The central government has also increased excise duty several times on petrol and diesel, thereby augmenting their revenue resources and taking advantage of falling crude prices, said the government. The sales tax realisation has come down due to this.

"I think it is not only Tamil Nadu, but all the states have to go through this phase now," he added.

The state has projected a revenue surplus of Rs 664.06 crore for the year 2014-15 and the according to the accounts for the year, it reported a revenue deficit of Rs 6,407.56 crore. While the projection for the year 2015-16 was a revenue surplus of Rs 783.43 crore, the revised estimates shows a revenue deficit of Rs 9,481.14 crore. For the year 2016-17, the projection is revenue surplus of Rs 311.45 crore, while the Budget estimate is a revenue deficit of Rs 9,154.78 crore, according to the Budget document.

The Budget document says that the significant fall in State's Own Tax Revenue growth rate, particularly in commercial taxes is due to reduced sales tax realisation on petroleum products because of fall in international crude oil prices. The reduced share in central devolution, delay in reimbursement of Grands-in-Aid from Government of India, in addition to reduced Central share in Centrally Sponsored Schemes have caused a strain on the state's finances.

However, expenditure has been kept under control and expenditure patterns are steady.

"In spite of constraints on revenue receipts, the overall fiscal deficit, net borrowings and debt-GSDP ratio will be kept fully within the permissible limits, except during 2017-18, based on the presumption that the Seventh Pay Commission recommendations will be implemented from then onwards. The state government has been taking all necessary steps to put the economy back on the growth path," it added.

With the revised pattern for the centrally sponsored schemes from 2015-16, the state has to bear an additional burden of about Rs 1,400 crore to Rs 2,000 crore during 2016-17, said the government.

However, the official refuted the criticism that the free schemes announced by the government five years back had an impact in the budget. He said that those were social welfare activities and cannot be counted as freebies. The State government has offered 31.78 lakh laptop computers incurring an expenditure of Rs 3,231.74 crore up to 2014-15 and a sum of Rs 1,100 crore has been allocated during the current year, thus fulfilling the electoral commitment.

The government has also implemented free distribution of electric fans/induction stoves, mixies and grinders to eligible women completing distribution of 1.76 crore sets of electric fans/induction stoves, mixies and grinders before February 2016, at a total cost of Rs 7,755.73 crore.