TN budget: State trumpets fiscal health, slams Centre again over funds

The Tamil Nadu government on Monday made a Budget Estimate of ₹1,95,173crore for the year 2024-25. Finance Minister Thangam Thennarasu emphasised the state’s ability to achieve fiscal consolidation in the last fiscal despite battling disasters, revenue shortfall due to the termination of GST compensation and spike in revenue expenditure on account of loss funding to state-owned power distribution company Tangedco. 

Fiscal deficit at ₹1,08,690 crore

The Tamil Nadu government has pegged the fiscal deficit at ₹1,08,690 crore in the Budget Estimates for 2024-25. Presenting the budget in the state assembly on Monday (February 19), Thennarasu said the government, by following the glide path of fiscal consolidation, has managed to rein in the fiscal deficit to 3.44 per cent of the GSDP from 3.46 per cent in 2022-23 and 3.45 per cent in 2023-24.

“This has been achieved despite the impact of disasters and after an unprecedented allocation to Tangedco from within the budgetary resources. This budget underscores the commitment of this government to deliver on the promises made to the people, without wavering from the path of prudent fiscal management, in spite of numerous challenges,” the Finance Minister said.

Raising the state’s long-standing demand to the Centre to ensure ‘fair’ devolution of taxes, Thennarasu said Tamil Nadu looks forward to a mechanism where it will receive its due share without being punished for development.

“The 16th Finance Commission has been constituted by the Union government recently. Under the able leadership of Dr. Arvind Panagariya, we hope that the historical injustice meted out to progressive states like Tamil Nadu by successive Commissions in the devolution of Union taxes will be remedied. We look forward to a fair mechanism wherein Tamil Nadu will receive its due share commensurate its role in nation building, without being penalised for its development,” he said.

Strain on state revenues

Thennarasu said the inordinate delay by the Centre in approving the Chennai Metro Rail Project – where the Centre and state are supposed to share the cost on a 50:50 basis – has also forced the state to incur the entire project expenditure so far from its budgetary resources, resulting in an expenditure of ₹9,000 crore in the current year.

The minister said the termination of the GST compensation regime from June 30, 2022 has also triggered a revenue shortfall of approximately ₹20,000 crore per annum. Besides, while the twin disasters – Cyclone Michaung and the flooding of southern districts – took a toll on the state’s finances, the Centre has not provided any support to the state from the National Disaster Response Fund despite repeated requests, he said.

“While unanticipated expenditure to provide necessary cash relief assistance and to undertake temporary and permanent restoration works has been incurred, there has also been a significant dip in the revenue collections,” he added.

'Stringent’ conditions on borrowing ceiling

The minister accused the Centre of stifling the state by putting curbs on the borrowing ceiling. He said the stringent conditions on the borrowing ceiling has restricted Tamil Nadu’s ability to raise resources to fund its development initiatives.

“On the contrary, even amidst these challenges, the Union government continues to stifle our state by exercising arbitrary and discriminatory control over our finances. The imposition of stringent conditions on the borrowing ceiling by the Union Government has unduly restricted the ability of the State to raise resources to fund its development initiatives,” he said.

Tangedco raises revenue expenditure

Citing an example, he said under such “stringent curbs”, Tamil Nadu has been mandated to provide ₹17,117 crore for loss funding to Tangedco in the current year, failing which an equivalent amount will be deducted from the borrowing ceiling fixed by the Centre. Moreover, an amount of ₹14,442 crore has to be provided for loss funding in the next year.

Thennarasu such a condition by the Centre imposes a huge financial burden on the state, constraining its ability to fund development initiatives.

“Therefore, on lines of the Ujwal Discom Assurance Yojana (UDAY) Scheme, this government has addressed the Union government to exclude this amount from the fiscal deficit and borrowing ceiling of the state,” he said. In these circumstances, the total revenue expenditure is estimated to be ₹3,17,484 crore in the Revised Estimates 2023-24 as compared to ₹3,08,056 crore in Budget Estimates.

The minister, however, asserted that despite the increase in revenue expenditure on account of loss funding to TANGEDCO to the tune of ₹15,594 crore and disaster relief and restoration to the tune of ₹2,041 crore, the increase has been contained to ₹9,428 crore through prudent fiscal management.

Fall in Own Tax Revenues, central aid

The state’s Own Tax Revenue, on the other hand, has seen a substantial fall due to severe impact caused by natural calamities, the minister said. Tamil Nadu’s tax revenue was estimated at ₹1,70,147 crore in the Revised Estimates for 2023-24 as against ₹1,81,182 crore in the Budget Estimates.

This reflects a reduction from the anticipated growth levels of 20.61 per cent in Budget Estimates to 13.26 per cent in the Revised Estimates. The state’s Non-Tax Revenue has been estimated to be ₹30,381 crore in the Revised Estimates 2023-24, which is a substantial increase over the Budget Estimates.

This is a result of the revenue augmentation measures taken by this government including rationalisation of rates and improvement in collection efficiency, Thennarasu said.

“The transfers from the Union government include grants-in-aid and share in central taxes. The grants-in-aid have been estimated at ₹26,996 crore in Revised Estimates 2023-24, which is marginally lower than the Budget Estimates. The share in Central taxes has increased to ₹45,053 crore in Revised Estimates 2023-24, as compared to ₹41,665 crore in Budget Estimates. The increase in the Revised Estimates is due to an increase in tax collections estimated by the Union government,” he added.

Slump in capital expenditure

The capital expenditure in the Revised Estimates 2023-24 is projected at ₹42,532 crore as against ₹44,366 crore in the Budget Estimates. Further, the Net Loans and Advances are estimated to be ₹6,624 crore in the Revised Estimates as compared to ₹10,169 crore in the Budget Estimates. This is due to the reduction in the pace of implementation of projects, as a result of the two calamities, the minister said.

Revenue deficit of over ₹49,000 crore

The state’s revenue deficit was pegged at ₹49,279 crore for 2024-25 compared to the revised estimate for 2023-24 of ₹44,907 crore.

Excluding loss funding to Tangedco, the revenue deficit is estimated to be ₹27,790 crore in Revised Estimates 2023-24, as compared to ₹36,017 crore in the Budget Estimates.

"In aggregate, the Revenue deficit is estimated at ₹49,279 crore in Budget Estimates 2024-25. This includes an amount of ₹14,442 crore for loss funding to Tangedco. Excluding this amount, the Revenue Deficit is estimated to be ₹34,837 crore in the coming year. It is notable that this is lesser than the revenue deficit excluding loss funding to Tangedco as compared to the Budget Estimates 2023-24," the minister said.

“This has been achieved through prudent fiscal management despite the adverse impact caused by the disasters on revenues and expenditure,” he added.

Budget Estimate

Based on the state’s economic growth, revision of taxes and improvement in collection efficiency, the government has made a budget estimate of ₹1,95,173 crore for the year 2024-25.

“The state’s Own Tax Revenue has been estimated at ₹1,95,173 crore in the Budget Estimates 2024-25, which is a growth of 14.71 per cent over the Revised Estimates 2023-24. This includes an amount of ₹1,43,381 crore from Commercial Taxes, ₹23,370 crore from Stamps and Registration, ₹12,247 crore from State Excise and ₹11,560 crore from Motor Vehicle Taxes. In anticipation of sustained levels of collection from the state’s Own Non-Tax Revenue, an amount of ₹30,728 crore has been estimated in the Budget Estimates 2024-25,” the minister said.

Fall in Grants-in Aid

As the GST compensation dues will completely end from the coming year, there is a reduction in Grants-in-Aid in the Budget Estimates 2024-25, as compared to the Revised Estimates 2023-24.

The Grants-in-Aid are estimated to be ₹23,354 crore. Based on the allocation made in the Union Budget 2024-25, the estimates fixed for share in central taxes for the year 2024-25 are ₹49,755 crore.

Revenue expenditure

In the Budget Estimates 2024-25, the total revenue expenditure is estimated at ₹3,48,289 crore. Beside the standard increase in committed expenditure in salaries, pensions and interest payments, the allocation for subsidies and transfers has been fixed at ₹1,46,908 crore.

This increase is primarily owing to an additional expenditure of ₹5,696 crore under the Kalaignar Magalir Urimai Thogai Thittam over the previous year, to provide for its first full year of implementation, Thennarasu said.

In Budget Estimates 2024-25, the Capital Expenditure is estimated at ₹47,681 crore, which is a growth of 12.11 per cent over the Revised Estimates 2023-24. The Net Loans and Advances are estimated at ₹11,733 crore, owing to an increase in expenditure for Chennai Metro Rail project from ₹9,000 crore to ₹12,000 crore.

“This government is investing heavily in infrastructure projects and is committed to increasing capital expenditure in the state,” he said.