T.N.’s capex push bolsters growth hopes

Revised estimates 8.7% higher than budgeted; ‘surprising positive’, says research firm Ind-Ra

The higher-than-budgeted capital expenditure undertaken in Tamil Nadu over 2020-21, is a ‘surprising’ positive that will boost the State’s medium-to-long-term growth prospects, India Ratings and Research has said in a report. Generally, State governments rein in capital expenditure when revenues are stressed.

Ahead of the assembly elections, the Tamil Nadu government presented a vote on account for FY22 and a full budget is expected to be presented by the newly elected government.

Revised estimates for capital expenditure this year are 8.72% higher than original Budget estimates and 58.65% higher than that incurred in 2019-20, Fitch Group-owned research firm Ind-Ra pointed out. “India Ratings (Ind-Ra) believes an increase in the capex would enhance the State’s productive capacity and hence be supportive of medium- to-long-term growth prospects of the state economy,” it said.

While Tamil Nadu (T.N.) is expected to record the highest fiscal deficit in this millennium as per the revised estimates for FY21 presented in the assembly, Ind-Ra has stressed that almost two-thirds of this slippage is driven by pandemic- and lockdown-induced revenue shortfalls without a commensurate reduction in revenue expenditure. This, it said, was in line with trends in other States and at the national level.

“The fiscal deficit increased sharply to 5.4% of Gross State Domestic Product (GSDP) in FY21 against the budget estimate of 2.4% (from 3.2% in the previous year). A notable shortfall in revenue receipts compared with FY21 (BE) contributed nearly 66% of the slippage in fiscal deficit.

The revenue account, which was consistently in deficit since 2013-14, clocked a considerably higher deficit of 3.4% this year than the budgeted 0.5% of GSDP (from 1.9% a year earlier),” the Ind-Ra report noted.

The State has budgeted a revenue deficit of 1.9% of GSDP and a fiscal deficit of 3.9% of GSDP in 2021-22, but these numbers may change after the formation of the next government.

‘Lower share for State’

The report also flagged the marginally lower share of the divisible pool of taxes for the State affecting revenue flows, with shortfall in the State’s own tax revenue accounting for nearly 40% of the fiscal deficit slippage, followed by State’s share in central taxes which accounted for 16.63% of the slippage.

“TN is one of the eight States which has a lower share in the divisible pool of central taxes as per the 15th Finance Commission (FC) award. The State’s share in central taxes reduced to 4.08% in the 15th FC award period from 4.10% in the 14th FC award period of 2015-16 to 2019-20,” it explained.

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