POVERTY REDUCTION STRATEGY TN

positive and relatively high. The basic challenge in the context of the changing structure
of the economy and employment is to create the capacity to absorb the population
migrating out of agriculture into industry and services with proper training and skill
development. At the same time, productivity in agriculture should not be allowed to fall.
This will require considerable additional investment in agriculture where government will
have to play a key role as the returns will not be adequate to attract large inflows of
private capital into agriculture. Higher growth, particularly in the non-agricultural
sectors, has been shown to have a significant direct impact on reducing poverty in Tamil
Nadu.
c. Fiscal Reforms for Poverty Reduction
Fiscal reforms and restructuring can strengthen growth and MDGs-based poverty
reduction can be achieved by emphasizing human development. These changes are
interdependent as expenditure on education and health accommodates absorption of
labour in the non-agricultural sectors. This strengthens the growth momentum,
generating additional revenues for the government for undertaking the required
expenditures on health and education while continuing to meet the Fiscal Reforms and
Budget Management (FRBM) targets. Further, fiscal space is created for undertaking
additional investment in infrastructure.
Tamil Nadu has been able to achieve its medium term fiscal responsibility
targets. By 2008-09, it has already achieved a less than 3 percent fiscal deficit level
relative to GSDP and a surplus on its revenue account. The ratio of outstanding liabilities
relative to GSDP is about 22-23 percent and its interest payment liabilities also compare
favourably with many other states. We have drawn up a fiscal restructuring plan for the
period up to 2014-15 highlighting the scope for creating additional fiscal space for
augmenting capital expenditure as well as expenditure on health and education relative
to GSDP within the framework of the FRBMA. There is scope for increasing expenditure
on water supply and sanitation, and on irrigation from the increased fiscal capacity. The
following are the main features of the proposed fiscal restructuring.
1. The FRBM targets of maintaining surplus on revenue account and keeping fiscal
deficit at 3 percent of GSDP has to be adhered to throughout the period up to 2014-
15. However, it is not necessary to over achieve the fiscal deficit target excessively
by bringing it down much below 3 percent of GSDP.
2. Keeping fiscal deficit at 3 percent of GSDP with some revenue account surplus,
capital expenditure can be increased reasonably above 3 percent of GSDP. It is
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