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Tamil Nadu : Development Imperatives and Reforms. Finance Department Government of Tamil Nadu. MACRO-ECONOMIC PROFILE. 1970-71. 2000-2001. SECTORAL COMPOSITION OF THE STATE DOMESTIC PRODUCT (Source: DOES). MACRO-ECONOMIC PROFILE. EMPLOYMENT BY MAJOR SECTORS (PERCENT) (Source: DOES).
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Tamil Nadu : Development Imperatives and Reforms Finance Department Government of Tamil Nadu
MACRO-ECONOMIC PROFILE 1970-71 2000-2001 SECTORAL COMPOSITION OF THE STATE DOMESTIC PRODUCT (Source: DOES)
MACRO-ECONOMIC PROFILE EMPLOYMENT BY MAJOR SECTORS (PERCENT) (Source: DOES) 1999-2000 1987 - 1988
MACRO-ECONOMIC PROFILE • An analysis of the sectoral composition of GSDP and sector-wise employment patterns reveals the following: • The State economy has undergone a transition from being primarily agrarian in nature to one led by rapid growth in services. • Despite the sharp decline in the contribution of the primary sector to the overall GSDP, as it well may, the employment in this sector remains over 50%. • Nearly 62% percent of the total population is estimated to be dependent on the primary sector. • The fact that the bulk of the population depends on the primary sector with its declining share straightaway points to substantial poverty.
MACRO-ECONOMIC PROFILE The broad conclusions are: • Tamil Nadu’s economy has changed from being mainly agrarian to one led by growth in the services sector. • The employment in the primary sector is high at over 50%. • The percent of the total population dependent on the primary sector is as high as 62%. • This high dependency of the population on the primary sector points to substantial rural poverty. • All estimates of poverty [Planning Commission, Deaton etc.] confirm high level of rural poverty. Highest among Southern States as per official estimates • Unemployment in Tamil Nadu is the third highest in the country. India average is 7.32%. Tamil Nadu is at 12.05%. • Income inequality is highest in Tamil Nadu. High rural poverty and high unemployment rates reveal this picture.
MACRO-ECONOMIC PROFILECORE AREAS OF CONCERN • Plateauing of the performance of the primary sector. Low growth –0.86% in later years 1998-2001, in the recent past, is a cause for serious worry. • This is attributed to technology stagnation, inadequate diversification, adverse impact on production and productivity due to recurrent drought, lack of new irrigation. • Manufacturing sector not doing well. Liberalization meant downsizing, correction and new jobs in new activities. Where are the new jobs? • Absence of adequate employment opportunities amongst the educated sections of the population. Employment Exchange statistics reveal that an estimated 5 million educated youth are on roll seeking employment. • Continuing poverty and high vulnerability. • Public sector downsizing adding to woes! • Stagnation in the other vital indices pertaining to human development. CBR has stopped falling. IMR is not falling rapidly enough. • Concerns over the state of public finances.
DEVELOPMENT STRATEGY OF THE GOVERNMENT OF TAMIL NADU • Double per capita income by 2010. • Attack poverty – Bring it down to less than 5%. • Provide employment. – Bring unemployment status to 5% by 2010. • Revive the primary sector. • Impart a new growth momentum to the manufacturing sector. • Facilitate the tertiary sector. • Human Development. • Fiscal consolidation. • Governance reforms to facilitate development.
STRATEGY FOR POVERTY ALLEVIATION AND REVIVING THE PRIMARY SECTOR • Address the problem of wastelands. Estimates indicate 2 million hectares of cultivable lands are lying waste either as current fallows or permanent fallows. • Adopt an agri-clinical approach to evaluate each farmer and his land and see how knowledge and inputs can be provided to revive cultivation of wastelands. • Address major problem of low irrigation addition. This involves multiple interventions which are as follows: • Encourage rainwater harvesting to replenish ground water and surface water sources. • Remodel and upgrade surface water sources such as irrigation tanks and village ponds with a basin wide approach.
STRATEGY FOR POVERTY ALLEVIATION AND REVIVING THE PRIMARY SECTOR • Take up precision farming with low water use • Change over to higher value added crops to facilitate better farm incomes. • Promote irrigation through conventional farm pump sets for large farmers and solar photovoltaic pump sets for small and marginal farmers. • Push for Peninsular River Water grid – Tamil Nadu stands to gain substantially – World Bank to help in Peninsular River Water grid completion in X Plan period.
STRATEGY FOR POVERTY ALLEVIATION AND REVIVING THE PRIMARY SECTOR • Examine each and every one of 1.5 million existing farm pump sets and mount extension programme to improve farm incomes to counter income shock. • Develop new technology packages for farm sector. • Rejuvenate farm extension systems with a convergence approach. • Involve women in farming. • Develop better market intelligence and communications to farmers. • Promote capital investment in agriculture. Revamp the cooperative credit system for better outcomes.
STRATEGY FOR POVERTY ALLEVIATION AND REVIVING THE PRIMARY SECTOR • Promote rural industrialisation – New Anna Marumalarchi Thittam and other non-farm activities in rural areas. • Promote rural self-employment. • Facilitate Self Help Groups to help themselves. • Encourage subsidiary occupations such as animal husbandry, fisheries. • Promote Fisheries Mission activities. • Promote Homestead farming in dry land areas with strong animal husbandry component.
IMPARTING A NEW MOMENTUM TO THE SECONDARY SECTOR • Focus on manufacturing. • Tamil Nadu has to emerge as an export-led economy. Focus on special economic zones. • Recognize contribution of SSI’s. Facilitate their revival and enhance their contribution. • Undertake second generation reforms in the secondary sector. These include the following: vReduction of transaction time and costs at Ports & Customs. vInterest rate corrections. vGlobal integration. vLabour reforms and labour productivity. vSimplification of procedures and deregulation. vProvision of quality infrastructure. vQuality Energy Supply. vTechnological modernization & upgradation. vReforms in State level taxation
IMPARTING A NEW MOMENTUM TO THE SECONDARY SECTOR • Our strategy for industrial revival includes: • Focussing on areas with comparative advantage and productive strengths such as textiles, leather, automobiles and ancillary industries, heavy engineering etc. • Focus on bio-technology, information technology enabled services, off shoring. • Radically improving the physical infrastructure. • Upgrading quality of human capital and skill formation. • Streamlining administrative processes and regulations so that they do not constrain growth and proliferation of businesses in the State.
IMPARTING A NEW MOMENTUM TO THE SECONDARY SECTOR • Focus on Quality infrastructure • The State Government has announced the constitution of an Infrastructure Development Fund (Rs. 200 crores). • New legislation on infrastructure development through public-private participation on the anvil.
IMPARTING A NEW MOMENTUM TO THE TERTIARY SECTOR • This sector has done well in the recent past. • Facilitate accelerated growth. • Focus on ICT, ITES, BPO off shoring opportunities. • Promote Tourism growth as a key driver. • Focus on urban development as growth driver.
INITIATIVES FOR HUMAN DEVELOPMENT • The Budget for 2003-2004 spells outs the concept of a comprehensive social safety net for the needy and poor with an outlay of Rs.4232 crores. • The effort will be to improve the social safety net in real terms. • Implement the Hon’ble Chief Minister's 18-point programme for Women and Child Welfare. • Mal-Nutrition Free Tamil Nadu entails whole life-cycle approach to the concept of nutrition security. • Entrepreneurial Development Programme for Women. • Provide all support including Medicare for vulnerable groups namely the aged, severely disabled etc.
FINANCIAL MANAGEMENT IN TAMIL NADU • Tamil Nadu has always had a tradition of prudent management of its Public Finances. • Our vital fiscal parameters were easily among the best in the country. Revenue deficit as percent of revenue receipts was less than 3% and the Fiscal deficit was 1.6% of GSDP in 1995-96. • This fiscal advantage and strong economic fundamentals of the State were hailed countrywide. • Tamil Nadu in 1995-1996 availed the largest development assistance from the World Bank and other multilateral financial institutions. • Achieving the development agenda set out by the State Government was always realisable.
PUBLIC FINANCES IN TAMIL NADU • The downslide in the public finances of the State Government was rather sudden. • It was triggered by the implementation of the Sixth State Pay Commission’s recommendations in 1998 with effect from 1.1.96. The State Government is still trying to cope with its impact. • The implementation of the recommendations of the Eleventh Finance Commission from the fiscal 2000-2001 dealt a body blow to the State’s finances. • Resort to borrowings to handle the huge recurring revenue deficit has led to an increased interest burden.
THE ISSUE OF PENDING LIABILITIES • States basically have a hard budget • The ways & means control and overdraft regulations of the Reserve Bank will not permit any substantial carryover. • Carrying over bills is counter productive – within a short period can lead to a fiscal breakdown. • Fiscal 2000-2001 end witnessed carryover of about Rs.700 crores. Fiscal 2001-2002 end involved carryover of about Rs. 1900 crores. This included about Rs. 800 crores of local body grants. The payment of this has been dropped as a one time aberration caused by State’s fiscal problems. • Good news: Fiscal 2002-2003 end involves virtually no carryover. All bills as at end of March 2003 have been settled. • Data on bills carried over is monitored closely. • Better still is to see whether there are any Treasury controls over and above normal controls. • Bills carried over is not a substantive monitorable indicator.
MANIFESTATIONS OF THE FISCAL CRISIS • The manifestations are: • Tamil Nadu’s planned development outlay has stagnated. • Investment on physical infrastructure has stagnated. • Huge liquidity crunch upto end of 2002-2003. • Pressure to cut back on social sector outlays. • Asset maintenance languishing. • Growth trajectory not encouraging.
BLUEPRINT FOR FISCAL REFORMS • ‘White Paper on Tamil Nadu Government’s Finances’ presented in August 2001. • A Medium Term Fiscal Reforms Programme has been prepared to correct the debilating fiscal situation. It seeks to achieve the following goals: • Rein-in the balooning revenue deficit and fiscal deficit. • Reprioritizing the outlays in the State Budget towards production oriented and social welfare sectors. • Restructuring of public utilities. • Budgetary Reforms. • Good Governance. • The State Government is signing up an MoU with the Government of India on MTFRP. • Tamil Nadu has gone in for a “big bang” approach – a whole slew of reforms have been put through in one go. • We are currently struck by SARM – Substantive and Accelerated Reform Mode.
STRATEGY FOR FISCAL REFORMS • Tamil Nadu is one of the very few States which has • made a significant tax effort in 2001-2003 • 2001-2002 – Rs. 135.38 crores • 2002-2003 – Rs.690 crores • 2003-2004 – Rs.420 crores • No other State has done such a massive tax effort • in recent years. MEASURES FOR REVENUE ENHANCEMENT • TAX REFORMS AND REVENUE AUGMENTATION COMMISSION • HEADED BY Dr. RAJA J. CHELLIAH CONSTITUTED. • OBJECTIVES: Recommend measures for augmentation of tax • and other revenues, streamline tax administration system to ensure • better compliance and collection, etc. • Recommendations on Sales Tax and VAT acted upon and announced in the Budget • Recommendations on the levy of Electricity Tax acted upon and form a part of the Budget 2003-2004. • Other reports when received will be examined.
STRATEGY FOR FISCAL REFORMS MEASURES FOR REVENUE ENHANCEMENT • Sales Tax and VAT • Tamil Nadu has already moved • towards unified rate system. • Resale tax- precursor to VAT – • introduced in 2002-03. • Computerization of Sales Tax system • underway. • A Samadhan Scheme announced in 2002-03 • to unlock ST receipts unavailable on • account of litigations. • Buoyancy in Sales tax restored. Near 15% • growth in 2002-2003 after 3.7 % • in 2001-2002. • State ready for VAT. • NON-TAX REVENUES • Visitor admission fee in hospitals and • charging system for equipment introduced. • Legislative amendments for revision of • irrigation rates enacted to take effect • from 1.7.2003. • Department-wise revision of user charges/ • non-tax revenues under examination. • Concept of payment wards introduced • Court fees proposed to be raised. • Charges for both rural water supply and • urban water supply revised.
STRATEGY FOR FISCAL REFORMS • RESTRUCTURING PDS • Tamil Nadu had a total of 161 lakh ration • card holders who took subsidized rice. • This has been reduced to 120 lakh BPL cards • on 1.8.2002 through a multiple screening • system and self-selection. • Changeover in the process of paddy procurement • effected. Under the new system, procurement • would be undertaken on behalf of Government • of India and State’s own rice pool has been • given up. • Rationalization of issue price of PDS rice is • through. As against the earlier uniform issue • price of Rs. 3.50/kg for 20 kg rice, the first • 10 kg is now being sold at Rs. 3.50/kg and • the subsequent 10kg at Rs. 6/kg. • Food subsidy reduced from Rs.1500 crores • in 2001-2002 to Rs.600 crores in 2003-2004. • Will contain at Rs.700 crores. • EMPLOYEE COMPENSATION • Facility for encashment of • surrender leave withdrawn. • Estimated Savings: Rs.343 crores p.a. • Annual Pongal Bonus discontinued. • Estimated savings: Rs.245 crores p.a. • Dearness allowance implemented with • lag – annual savings Rs.300 crores. • 9632 live posts of Gang Mazdoors • in Highways Deptt. and 13,491 live • posts of Makkal Nala Paniyalars • (People Welfare Workers) in RD • Department abolished. • Estimated Savings: Rs.100 crores p.a. • Expenditure compression of more than • Rs.1000 crores per annum achieved. MEASURES FOR CONTROLLING EXPENDITURE
STRATEGY FOR FISCAL REFORMS • POWER SECTOR REFORMS • SERC constituted. • Tariff decisions of SERC accepted and • implemented from 16th March 2003. • Agreement with Govt. of India on power • sector reforms has been implemented. MEASURES FOR CONTROLLING EXPENDITURE • RESTRUCTURING PUBLIC SECTOR • ENTREPRISES • The Government has ordered the • closure of 7 State PSUs. Winding • up is underway. • VRS package for State PSU • employees announced. Downsizing • taken up. • Disinvestment Policy of the State • Government has been finalized. • Policy statement on exit from • Manufacturing sector announced. • RESTRUCTURING OF • PUBLIC TRANSPORT SECTOR • Bus fares revised on 1.12.2001. • Decision taken to reduce the number of • STUs from 21 to 7. • Competition policy public bus transport • system announced. • Public sector bus companies turn around • achieved in 2002-2003.
STRATEGY FOR FISCAL REFORMS • STAFF AND EXPENDITURE REVIEW • COMMISSION APPOINTED • The terms of reference include • analysis of staffing pattern and • identification of surplus employees, • formulation of an exit package and • restructuring of employee benefit • scheme. • The SERC has submitted 10 reports • covering 70 Deptts. This is being • examined. • Next step is to match unfilled vacancies • With surplus declared by SERC and • abolish the posts as a permanent • correction. MEASURES FOR CONTROLLING EXPENDITURE • RESTRUCTURING THE SUBSIDY • REGIME • Free Saree Dhoties scheme • with an annual outlay of • Rs. 100 cr. restructured into a • market-based scheme with an • annual outlay of Rs. 45 cr. • Marriage assistance scheme • discontinued. Estimated savings: • Rs. 50 cr.
STRATEGY FOR FISCAL REFORMS • Pension Reforms • Contributory Pension scheme for new employees from 1.4.2003. • Pension entitlements reduced. • Commutation entitlement and commutation table revised. • Payment of part of gratuity and encashment of leave in Small Savings. • No other State has undertaken such major Pension scheme changes.
STRATEGY FOR FISCAL REFORMS • OUTSTANDING DEBT AND GUARANTEES • Mechanism for substitution of high-cost • debt from Govt. of India worked out. • Resetting of outstanding high Cost debt • with HUDCO completed. • Guarantee Redemption Fund with the • RBI being created. MEASURES FOR CONTROLLING EXPENDITURE • BUDGETARY REFORMS • Simplification and demystification of the • the Budgetary process. • Fiscal Responsibility Bill. • Improvement in Budget execution and • marksmanship. • Focus on operational flexibility with fiscal • discipline. • Enforce financial accountability.
STRATEGY FOR FISCAL REFORMS • Adopt a good governance code to enable reforms to be more • palatable. • The State Government has already enacted the Tenders • Transparency Act. • A Special Cell called ‘Procurement Procedure Cell’ has already been • set up in Finance Department for framing policy and rules for overseeing • Public Procurements following a World Bank study. • Draw up an action plan on Procurement Policy. • The State Government will attack corruption at the cutting edge level. • To cut down delays by using power of IT. • New system of contract delivery of services to be introduced. • Adopt Citizen’s Charters. • Examine citizen interfaces and improve service delivery.
