Tamil Nadu slips deeper in debt

Every child in Tamil Nadu will be born with a debt of Rs 15,000 on its head, AIADMK leader J Jayalalithaa said in her usual flamboyant style early this year while accusing the then DMK government of leading the state into a debt trap. The state, no doubt, was deep in debt then. Aggregate borrowings were in excess of Rs one lakh crore and over 70 per cent of the state's own revenues go towards payment of salaries/pensions and in meeting the interest obligations.

Many months and a new government (led by Jayalalithaa ) later, every new born in the state will probably carry a little more debt on its head. The fiscal 2011-12 will end with the state having a total borrowing of Rs 1.19 lakh crore up as against the earlier estimate of Rs 1.01 crore (made by the DMK government). The state budget presented yesterday indicates a lot more borrowing. ``… additional borrowing is unavoidable to keep up the pace of developmental activities in the state,'' finance minister O Pannerselvam said in his budget speech.

Tamil Nadu: Bloated with freebies

But that is only the half truth. If the new government is unable to do much on the debt front apart from just paying a lip service, it is because of its own populist electoral promises. Consider this: the government has allocated Rs 1,250 crore for free distribution of fans, mixies and grinders (that too for just 25 lakh families this year), Rs 1080 crore for free houses that will be solar powered, Rs 394 crore for cash dole to students and Rs 514 for gold mangalsutras for brides. Many other freebies such as free rice will see food subsidies running out of control.

The situation has been aggravated by this ghost of "tax free budget" that has come to occupy the minds of the political parties in the state. A budget which has any new taxes is seen as anti-poor and outright bad. Jayalalithaa did raise taxes on a few commodities recently (again to keep the budget tax-free) to augment state resources but that was grossly inadequate.

What is worse is that the AIADMK government is trying to camouflage its policies which, in a way, are a continuation of earlier DMK government's populist policies by projecting a revenue surplus. The message is - look we are giving freebies but we are not irresponsible. But the revenue surplus has been managed by assuming a strong rate of growth which looks unlikely especially considering that the state is reeling under a massive power crisis and shortage of labour is forcing industries to look at expanding elsewhere in the country.

If the state's economy does not grow, Jayalalithaa will have little choice but to raise taxes and take more stringent measures to reign in the runaway deficit. In a way she is basically postponing the inevitable.