POVERTY REDUCTION STRATEGY TN

immediately. Fiscal slippage could be due to (i) external circumstances beyond the
control of the state government, and (ii) inadequate reform measures. The state
government has less control on the revenue side as it depends on external circumstances
affecting the economy. If slippage on the revenue side is encountered, it should be
counter-balanced by an adequate expenditure side correction. The expenditure side is
largely under the control of the government except for interest payments and pensions.
3.8 Summary
Fiscal interventions are keys to achieving MDGs based poverty reduction targets. Tamil
Nadu has been able to achieve the medium term fiscal responsibility targets. By 2008-09
it has already achieved a fiscal deficit level relative to GSDP which is less than 3 percent
and a surplus on its revenue account. The ratio of outstanding liabilities to GSDP is close
to 23 percent and interest payment liabilities also compare favourably with many other
states. With a view to achieving MGDs based poverty reduction targets, expenditure on
infrastructure as well as that on health and education needs to be further strengthened.
We have drawn up a fiscal restructuring plan for the period up to 2014-15 to show that,
it is consistent with the FRBMA to create additional fiscal space for augmenting capital
expenditure as well as expenditure on health and education. The following are the main
features of the proposed fiscal restructuring process.
1. The FRBM targets of maintaining surplus on revenue account and keeping fiscal
deficit at or below 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 fiscal deficit down much below 3 percent.
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
shown in the fiscal restructuring scenario that the capital expenditure to GSDP ratio
can be increased to a level close to 4.6 percent of GSDP by 2014-15. This will not
cause any appreciable increase in the debt-GSDP, which remains below 23 percent.
3. On the revenue expenditure side even though there may be some pressure on
pensions and salaries, interest payment relative to GSDP will steadily go down as
growth of liabilities is kept in check.
4. In combination with marginally buoyant revenues, expenditure on education and
health can be increased from 2.56 and 0.66 percent of GSDP in 2007-08 to nearly 5
percent in the case of education and a little less than 1.3 percent in the case of
health. This will however necessitate some reduction in other social services as well
as economic services. However, for a sustained broad based reduction of poverty,
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