Chennai: Tamil Nadu tops the nation in fiscal deficit though its gross domestic product an indicator of wealth generation is just more than half of Maharashtra, which is the richest state, according to the first handbook on state finances released by the Reserve Bank of India on Monday. Tamil Nadu's fiscal deficit of 31,870 crore is higher than Uttar Pradesh that ranks second with 31,560 crore. Maharashtra is placed third with a fiscal deficit of 30,730 crore.

Tamil Nadu's fiscal deficit has increased by 16.5% compared to last year while Maharashtra has reduced its fiscal burden by 17.5% at the same time. Experts state that the fiscal deficit in Tamil Nadu has been on the rise due to falling tax revenues even as expenses have increased. Maharashtra continued to be the richest state with its gross state domestic product at 9.50 lakh crore followed by Tamil Nadu with 5.15 lakh crore.

Fiscal deficit refers to the excess of total expenditure (including loans) over revenue receipts (including external grants) and non-debt capital receipts. Since 1999-2000, fiscal deficit has been calculated excluding states' share in small savings as per the new system of accounting, says the RBI report.

Tamil Nadu's fiscal deficit is 2.89% of its GSDP. This is lower than the 3% limit mandated by the Fiscal Responsibility and Budget Management Act (FRBM).

But the stress on state finances is likely to be worsened by the implementation of 7th Pay Commission recommendations for state government employees.

"The state was on election mode in 2015-16 and the government must have overspent to fulfil its populist promises leading to a higher fiscal deficit," National Institute of Public Finance and Policy professor N Bhanumurthy told TOI. On the revenue side, the government did not meet tax collection targets, leading to the widening revenue-expenditure gap, he said. The full budget will present the real picture of the state's finances, the professor said.

There is also a theory that being a manufacturing state, Tamil Nadu's tax collection did not meet the target as there is a glut in the sector overall. "The manufacturing sector has not picked up across the country and there is actually a deceleration (decline). The burgeoning fiscal deficit goes with the election cycle and the manufacturing sector glut has added to the high fiscal deficit," said Bhanumurthy.

The state is safe as long as it does not breach the 3% margin. "The state will not be permitted to cross the FRBM line. and the state could take leverage of 0.5% and control expenditure and boost its revenues For any violation, the state will be penalised as per the Finance Commission stipulations and borrowing by the government will be curtailed," said Bhanumurthy.



Facebook Twitter Linkedin EMail