POVERTY REDUCTION STRATEGY TN

Table 3.2: Tamil Nadu in Inter-state Comparison: Selected States: 2007-08 (RE)
(Percent)
States
Interest
Payment to
Revenue
Expenditure
Interest
Payment to
Revenue
Receipts
Own Tax
Revenue/
Revenue
Expenditure
Revenue
Deficit/
Fiscal
Deficit
Capital
Outlay/ Fiscal
Deficit
Andhra Pradesh 15.5 15.4 56.4 -4.9 139.8
Karnataka 12.5 11.6 71.9 -49.0 146.0
Kerala 18.2 22.1 53.5 67.3 21.7
Tamil Nadu 13.5 13.2 64.1 -12.4 105.4
All States 17.0 16.4 48.4 -20.9 118.9
Source (Basic Data): RBI (2008), State Finances: A Study of Budgets 2008-09, December.
b. Outstanding Liabilities and its Determinants
The accumulation of primary deficit, that remains unneutralized by the excess of growth
over interest rate results in an increase in outstanding liabilities of the government. In
Tamil Nadu, the outstanding liabilities have increased from a level of 18.7 percent in
1993-94 to 29.3 percent in 2003-04, a rise of more than 10 percentage points in 10 years
(Table 3.1 and Chart 3.3). After this year, it has started stabilizing. It actually fell for a
few years, but is slated to be at 22 percent in 2009-10 BE. This may be an acceptable
level considering that the Twelfth Finance Commission (TFC) has suggested an overall
target of 28 percent for the states as a whole.
The TFC has recommended debt relief to the states in the form of restructuring
of all central loans with state governments as on March 31, 2005 by consolidating and
rescheduling at 7.5 percent interest rate repayable over twenty years. This was made
conditional on a state enacting a Fiscal Responsibility Legislation, which Tamil Nadu
government had already enacted in 2003. With some amendment, Tamil Nadu became
eligible for the benefit of rescheduling and debt write-off. As a result, Rs. 6872 crore of
outstanding central loans on Tamil Nadu government’s books were to be restructured.
The interest gain is estimated at Rs. 1195 crore in Tamil Nadu’s case over the period
2005-10. The TFC had also recommended debt write-off linked to reduction in the
revenue deficit of the state government. Under the scheme, a certain proportion of
repayment of rescheduled debt is to be written off by Government of India over the
period 2005-06 to 2009-10. The quantum of write-off is linked to the absolute amount of
reduction in the revenue deficit each year with the ultimate objective of eliminating the
revenue deficit by 2008-09.
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