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POVERTY REDUCTION STRATEGY TN

may be noted that even

may be noted that even with the introduction of VAT, given the high petroleum prices and since these are subjected to special rates within the structure of state VAT, it is likely that the state government will achieve its revenue rising targets. Table 3.7: Tamil Nadu Finances in the Medium Term: Projections 2007-08 to 2014-15 (Percent to GSDP) Fiscal Indicators 2007-08 RE 2008-09 (PR) 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 Own Tax Revenues 10.11 10.11 10.24 10.38 10.52 10.66 10.81 10.95 Own Non-tax Revenues 1.04 1.04 1.04 1.04 1.04 1.04 1.04 1.04 State's Own Revenue 11.15 11.15 11.28 11.42 11.56 11.70 11.84 11.99 Total Central Transfers 4.93 4.97 5.01 5.04 5.06 5.08 5.07 5.07 Share in Taxes and Duties 2.79 2.83 2.86 2.90 2.93 2.95 2.96 2.98 Grants 2.14 2.14 2.14 2.14 2.13 2.12 2.11 2.09 Total 16.08 16.12 16.29 16.46 16.62 16.77 16.92 17.06 Revenue Receipts Interest payments 2.13 1.78 1.86 1.87 1.86 1.86 1.85 1.84 Pensions 2.32 2.36 2.26 2.16 2.06 1.96 1.86 1.76 Other General Services 1.60 1.60 1.50 1.41 1.32 1.23 1.15 1.07 Total General Services 6.05 5.74 5.62 5.44 5.24 5.05 4.85 4.67 Education 2.56 2.74 3.34 3.63 3.93 4.25 4.58 4.93 Medical and Public Health 0.66 0.71 0.86 0.93 1.01 1.09 1.18 1.27 Other Social Services 2.63 2.40 2.34 2.28 2.21 2.14 2.07 2.00 Total Social Services 5.85 5.85 6.53 6.84 7.14 7.48 7.82 8.20 Economic Services 2.72 2.67 2.65 2.63 2.59 2.56 2.52 2.47 Grants-in-aid and 1.15 1.07 1.06 1.05 1.04 1.02 1.01 0.99 Contributions Total 15.77 15.33 15.87 15.95 16.01 16.12 16.20 16.33 Revenue Expenditure Revenue Surplus 0.32 0.79 0.43 0.51 0.60 0.66 0.72 0.73 Fiscal Deficit 2.56 2.92 3.00 3.00 3.00 3.00 3.00 3.00 Primary Deficit 0.44 1.14 1.14 1.13 1.14 1.14 1.15 1.16 Non-debt Capital Receipts 0.85 0.87 0.83 0.79 0.76 0.72 0.68 0.65 Capital Receipts 3.42 3.79 3.83 3.79 3.76 3.72 3.68 3.65 Capital Expenditure 2.88 2.94 4.25 4.30 4.36 4.38 4.40 4.38 Total Expenditure 18.65 18.27 20.12 20.26 20.37 20.49 20.60 20.71 Outstanding Liabilities 22.73 22.52 22.58 22.63 22.60 22.56 22.45 22.36 Source (Basic Data): State Budget Documents. It is shown in Table 3.7 that education and health expenditures can be increased progressively such that by 2014-15, the share of expenditure on education as percentage of GSDP would have increased to a level close to 5 percent and expenditure on health would have increased to nearly 1.3 percent of GSDP. In order to provide for the salary increases in the wake of the recommendations of the Sixth Pay Commission for education and health sectors which are highly salary intensive sectors we have provided for substantial step up in 2008-09 and 2009-10 in the growth rate of revenue expenditures. In 2008-09, for example in education the growth rate is about 25 percent and for 2009- 66

10 it is kept at 40 percent to accommodate both salary increases and additional recruitment. It is possible to maintain surplus on revenue account, by maintaining fiscal deficit at a level of 3 percent and the ratio of outstanding liabilities relative to GSDP also remains just a little less than 23 percent. It is also possible to substantially increase capital expenditure as a percentage of GSDP to levels above 3 percent of GSDP. In other words, it is consistent with the FRBM Act to considerably increase investment in infrastructure as well as in health and education. Such fiscal restructuring will provide stimulus to achieving MDGs based poverty reduction within the framework of fiscal discipline. 3.6 Other Fiscal Reforms: From VAT to GST For a better coverage of services at the state level, appropriate changes are required, to enable the states’ to share potentially large and growing tax base. Given the magnitude of the GSDP, such changes would be especially beneficial to the state economy. The Government of India, vide a constitutional amendment has placed taxation of services under Article 268A. The central and the state governments are now moving towards implementation of a comprehensive GST. This will help the state governments both in terms of real growth and more buoyant tax revenues. i. User Charges and Non-tax Revenues The state government particularly needs to look into the profile of user charges in relation to the costs of providing various general, social and economic services, particularly when the services are private in nature although publicly provided. Six areas need focused attention are education, health, agriculture, irrigation, power, and transport. ii. Subsidy Reforms Subsidy as a budgetary instrument of promoting social welfare has been overused, and sometimes abused, leading to inefficiencies. The cost of subsidies has generally been underestimated because most subsidies are hidden or implicit. In state budgets, only a very small fraction of subsidies is shown explicitly as subsidies. 3.7 Monitoring Process of Reforms and Mid-course Corrections The progress of reforms needs to be monitored each year. As soon as deviations from the expected reform path are observed policy corrections should be introduced 67

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