The Hindu : Towards fiscal consolidation

Online edition of India's National Newspaper
Thursday, Mar 28, 2002

Opinion

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Towards fiscal consolidation

GIVEN TAMIL NADU'S financial position, the Finance Minister, C. Ponnaiyan, cannot be faulted for his zeal in mopping up additional resources in his budget for 2002-03, presented in the State legislature on Wednesday. He has tapped every source to raise Rs. 690 crores, but is still left with an uncovered overall deficit of Rs. 640.24 crores. While promising zero-base budgeting and rationalisation of subsidies, Mr. Ponnaiyan has not gone far enough on the path of reforms. The power, public distribution and infrastructure sectors have been crying for attention and reforms, but this is obviously going to take some time in coming, though a beginning has been made. The Finance Minister has devoted considerable time and space in his budget to focus on fiscal reforms and the Chief Minister's 15-point programme, which is the AIADMK Government road map for the next four years. As a matter of political strategy, he could perhaps have plunged headlong into reforms, now that the Government is less than a year old.

In raising resources, Mr. Ponnaiyan has not spared any section. But the Government will come under extreme pressure to roll back the two per cent sales tax on rice and wheat and four per cent on some other sensitive commodities. A third of the additional revenue will come from the proposed infrastructure surcharge of five per cent of sales tax paid under the TNGST on all items except essential commodities such as rice, wheat and kerosene. Another Rs. 90 crores is expected from the setting up of bars in IMFL outlets — a move to legalise a business that has been going on clandestinely. The extension of the controversial entry tax to more items is seen as a retrograde step. Legal questions are being raised about the proposed 20 per cent tax on imported goods, whose indigenous counterparts are taxable at 12 or 16 per cent. Unfortunately, the Samadhan scheme or the Settlement Commission that the Government has planned has proved unsuccessful in the past and may not produce the desired results. Another announcement relates to the setting up of a Tax Reforms and Revenue Augmentation Commission with noted economist Raja Chelliah as Chairman. Considering the constraints under which States have to work, this commission will be facing a daunting task.

Though raising revenue has been the major concern and justifiably so, it is a pity that Tamil Nadu has not pushed ahead with reforms. While reassuring the people that ration rice will continue to be sold at Rs. 3.50 per kg, the Finance Minister has said coupons will be issued for a whole year to card holders for the purchase of rice. It is time for the Government to make up its mind and start targeting the subsidies. Providing subsidised rice to Above-the-Poverty-Line families only adds to the State's burden and opens the doors for diversion of stocks. Similarly, power reforms cannot be postponed. While metering all supplies, the Government must gather the political courage to start charging, at least nominally, the agricultural consumers. The diversion and `theft' of power are even more serious than the transmission and distribution losses. The Disinvestment Commission must be given a timeframe to submit its recommendations and these must be acted upon swiftly. One lacuna in this budget is the lack of a thrust to infrastructure and industrial development. Apart from the infrastructure surcharge, the Minister could have come up with a package of projects that can be opened to the private sector or be taken up as joint ventures. Since the Chief Minister, Jayalalithaa, has vowed to make Tamil Nadu the Number One State, industry and trade are expecting a detailed road map.

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