The Budget for FY24 presented by Tamil Nadu ticks the right boxes as far as staying the course on fiscal prudence goes. The revenue deficit for FY23 is 34 per cent lower than FY22. This is largely due to the buoyancy in tax collections with the State’s own tax revenue growing at a robust pace. However, growth in revenue expenditure has also been contained at 8 per cent. Tamil Nadu has therefore managed to rein in its fiscal deficit at 3 per cent of GSDP in FY23.
The fiscal deficit for FY24 has been contained at 3.25 per cent of GSDP (about ₹28.3-lakh crore), utilising the additional 0.25 per cent allowed for implementing power sector reforms. Tamil Nadu’s net borrowing is one of the highest among States and Union Territories at ₹91,866 crore for FY24 but outstanding debt to GSDP is well within mandatory limit. While fiscal prudence is welcome, growth projections for FY24 appear optimistic, which could put the projected fiscal deficit at risk. The budget estimates nominal GSDP growth for FY24 at 14 per cent, same as the growth recorded in FY23. In contrast, the Union Budget had marked down its nominal GDP growth estimate from 15.3 per cent in FY23 to 10.5 per cent in FY24. Given the high base, slowing consumption due to RBI’s interest rate hikes, tough external environment and declining inflation, nominal growth for FY24 is likely to be much lower than FY23.
Growth in TN is also likely to be impacted by the challenges facing the export-oriented textile and IT services industry. Against this background, growth in own tax revenue of 19.3 per cent for FY24 could be a tough target to achieve. The State will also have to reckon with the phasing out of GST compensation cess in FY24. The loss of revenue due to reduction in registration fee for land will however not hurt much since the revision in guideline value to pre-2017 level will mitigate the impact.
The 15.6 per cent higher allocation (over FY23 revised estimates ) for capital expenditure in FY24 , and the announcements to spend on Jal Jeevan Mission, metro rail projects, upgrading rural roads and restoration of water bodies are all steps in the right direction. The State should, however, ensure that these capex plans are implemented. The growth in the revised estimate for capital expenditure in FY23 was just 3.6 per cent over FY22 actuals, and lower than the budgeted allocation by nearly ₹5,000 crore. Subsidies and grants account for 30 per cent of the State expenditure and this is in turn inflating the deficit, leading to higher borrowing. The scheme to give ₹1,000 every month to women heads of households (Magalir Urimai Thogai) will entail an outflow of ₹7,000 crore, which has increased the fiscal deficit by 8 per cent in FY24. While there is no disputing that some of the welfare schemes have a significant socio-economic impact, such pay-outs should ideally be reserved for crisis times.