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Tamil Nadu's `mini-budget': Will it revive fiscal health?

S. Venkitaramanan

The cash-strapped Tamil Nadu Government has announced a hefty but essential mini-Budget. The recent travails of commuters, brought on by the unreasonable demands of striking transport workers, has inadvertently helped create an environment favourable for the tough measures being introduced to rescue the State finances.

The timing has proved to be almost perfect from the point of view of acceptance by the populace. The people will find it difficult to resist the State Government's logic that the priority is for resources to be raised to meet the growing deficit. Politic al parties may oppose the move, but the common man will understand that an unviable State Government will find it difficult to serve the very people it chooses to pamper with subsidies and concessions at the cost of fiscal health.

Fiscal correction, in the sense that the State should earn enough through taxes and user charges to meet its expenses, has been recommended by all economic reformers _ from Dr Manmohan Singh to Dr I. G. Patel. State governments that do not cover their ex penses, naturally find it difficult to undertake necessary additional investments to improve infrastructure that falls into disrepair.

Multilateral institutions, such as the Asian Development Bank and IBRD, have also linked their offer of large blocks of aid to the State to the condition that fiscal reforms be completed as a first step. There is also the added incentive that the Centre offers States that complete fiscal correction. The tough measures that the Tamil Nadu Government has initiated will, therefore, prove beneficial to the people in the long run because it is the only way the State can undertake larger investments. Only the n can a better quality services be rendered.

The primary focus of Tamil Nadu's latest resource effort has been on raising revenues and user charges. The pride of place has been given to the effort to make the TNEB and the public transport corporations viable. The impact of the electricity tariff re visions is expected to be an enhanced revenue inflow to the TNEB of Rs 1,500 crore.

Considering that the tariff revision has left untouched free power for agriculture, TNEB will continue to need subsidies from Government. It is essential that the State Government re-examines its political compulsions, which have prevailed on it to conti nue concessional tariffs to agriculture. A reconsideration is justified, at least in respect of farmers who grow commercial crops. A discrimination in tariff, which charges farmers who can afford to pay, will definitely be worth trying.

Free power also leads to massive thefts by means of other users masquerading as agriculturists. It also leads to wasteful use of power. It is time the political leadership of the ruling party recognised that the costs of being populist in electricity wil l, in the long run, lead to TNEB becoming bankrupt and bringing the State down with it. Additions to power generation, especially in the private sector, are themselves conditional on the TNEB being viable and able to pay for the power it buys from privat e producers and the central power generating institution.

Further, fresh investment will be jeopardised by the continuance of the unviable state of the TNEB and its inability to provide escrow account consequent on concessions to agriculture. One hopes that the bold initiative of the Tamil Nadu Government in re spect of resources will soon extend to the area of concessional agricultural tariffs also. Farmers would definitely prefer steady power, for which they have to pay, to uneven power, even if it is free.

The revisions in the rates of taxes on motor vehicles are in the right direction. In respect of Sales Tax, the Government has chosen rightly to fall in line with the Central Government's policy decision on a floor rate. Nor will anyone complain about the essential changes on IMFL taxation.

The changes in bus fares will find reluctant but ready acceptance from commuters, who have experienced the chaos of multiple tariffs levied by non-government operators in the recent strike period. What is essential is to emphasise better management of th e public transport corporations. Modern management principles need to be adopted. There is considerable scope for improvement in their operating efficiencies, which should now be the primary focus of Government's attention. The public will be fully appre ciative of any efforts made by Government in this direction, even if they involve unpleasant decisions.

One of the politically courageous measures adopted by Government is the revision of prices for the public distribution system. Those above the poverty line (APL) will now have to pay Rs 9 per kg, while those below the poverty line (BPL) will get rice at Rs 3.50 per kg. While this persisting gap between APL and BPL consumers is part of the orthodoxy of the entire political spectrum, I would like to point out that such a large disparity in prices will lead to leakage and impose further problems on the adm inistration of PDS.

To supply rice at Rs 3.50 per kg, even to the BPL section, is economically questionable, given the higher procurement prices. The BPL price should, at best, be 10-15 per cent below the market price. Any higher differential would be ultimately injurious t o the interests of the farmers themselves, which will reduce production and hurt the interests of the consumers.

Anyway, one has to be thankful for small mercies. The Tamil Nadu Government has at last taken the bold initiative to break the stranglehold of the low issue price of the PDS, which has heavy expenditure implications and also leads to disincentives for ag ricultural production.

The resources package includes a courageous decision to cut staff strength by 30 per cent. While the spirit behind the decision is welcome, care has to be taken to ensure that the essential maintenance needs of Government departments are not sacrificed a t the altar of instant savings. Maintenance of roads, buildings and irrigation works should be high priority. Of course, the proposed package includes provision for outsourcing of Government work.

Whether such maintenance works can be outsourced is intrinsically a political question. It is hoped the Government will take the courageous decision to contract out the maintenance of at least some of the public buildings and roads. Experience in these w ill guide further expansion of outsourcing, which has proved to be among the major sources of improved efficiency in experiments on re-engineering administration in the US.

There is mention in the proposals of a voluntary retirement scheme package. While the innovative approach is a positive step forward, care has to be taken to avoid the pitfalls encountered during the commercial banks' experiments with VRS. It is natural that, as part of VRS, experienced personnel tend to accept the separation package more readily, leaving Government services a hollow shell full of novices. VRS should be suitably structured to avoid such flaws.

There is a mention in the package of an improved lottery scheme, availing of an online lottery. This proposal had been investigated thoroughly and an Expert Committee, which included Mr Gnanadesikan, had recommended its adoption, on the pattern of succes sful models available in Singapore and Malaysia. No action was taken by the then Government on these recommendations.

The UK Government runs a successful lottery on these lines, the proceeds from which are used for many essential charities. The proposal for the online lottery needs to be implemented with suitable safeguards, and drawing from the experience available in other countries. One hopes Tamil Nadu will be a trailblazer in the transformation of the lottery system. Considering that the public of Tamil Nadu invests liberally in other States lotteries, it is time the State attempted to successfully garner more of the local offerings for its own benefit.

All in all, the resource package presented by the Tamil Nadu Government is well-structured and well-timed. I hope all sections of the people will support these essential measures for improving the State's economic and fiscal health. They are necessary, b oth in its short-term and long-term interests.