The Fifteenth Finance Commission of the Government of India is visiting the state of Tamil Nadu from 5th to 8th September 2018. The Commission led by the Chairman Shri N.K.Singh, Members – Dr. Anoop Singh, Dr. Ashok Lahiri, Dr. Ramesh Chand and Secretary Shri Arvind Mehta along with other officials will have meetings with Chief Minister, Ministers and other officials of the state in Chennai. Detailed presentations will be made on the finances of the State Government. Ahead of meeting with the CM on 6th Sep, Commission will meet the economists of the region in Chennai on 5th Sep. to understand the macro economic issues and some peculiar issues related to southern part of the country in the light of the development trajectory of the region. It may be noted that Tamil Nadu will be the second state in Southern India after Kerala to be visited by the Commission.

There will be meetings with the leaders of various political parties, representatives of Trade and Industry, Urban Local Bodies and Panchayati Raj Institutions to understand the issues concerning the state. Commission will also undertake field visits in Madurai and pay a visit to Dr. A.P.J. Abdul Kalam memorial in Rameshwaram. Ahead of the visit, Commission understood in New Delhi, various aspects of its finances and issues related to socio-economic spheres from Accountant General of Tamil Nadu.

Background:

Inter district disparity in PCI, GST Collections, declining growth of Own tax revenue and capital expenditure remain concern

Tamil Nadu has made great strides in its industrial sector development and has emerged as a manufacturing hub. Its contribution to the country’s economic growth is quite impressive and it has shown a great growth potential. The structure of GSDP in Tamil Nadu has been shifting away from agriculture towards industry and services. From 2012-13 to 2016-17, the average share of agriculture and allied sector was 10.9%, industry was 35% and that of services was 54.6%.

States GDP after a decline in 2015-16 has picked up again, however declining growth rate of own tax revenue in recent years particularly from 2013-14 onwards is a concern. Since 2013-14 due to a combination of factors like slow revenue growth, spurt in exceptional expenditures like UDAY, pay commission award and drastic reduction in central devolution, the State is witnessing Revenue Deficits. Its Capital expenditure is also low. As per RBI study of state budgets, Tamil Nadu is among the highest borrowing states. Its Fiscal deficit stood above 4 % and debt to GDP ratio stands at 22.31% in 2016-17.  Commission will also look into the issues relates to GST collections. Power sector is not fully unbundled in the state. Commission will try to understand the issues related to the implementation of UDAY scheme.

Though Tamil Nadu has done well in economic uplift of the people, Inter district disparity in per capita income (PCI) is evident. 18 out of 32 districts are having lower PCI than the state average PCI (Rs. 1,54,375 in 2015-16). Per capita income of the top ranked district is about 2.8 times larger than that of the poorest district. Poverty in Tamil Nadu is lower than many states of the country, parts of Tamil Nadu are having high poverty. State intervention is resulting in fast decline in poverty ratios, nearly all of this reduction in the number of families below poverty line comes from rural areas.

Tamil Nadu is one of most urbanised states which throws up the challenges related to urbanization, migration, slums and urban poverty. State has achieved replacement level of population growth therefore increasing population of elderly is a concern. This unique combination of demography and urbanization needs a specific strategy in public expenditure and investment in critical areas in the coming decade if it is to attain its growth potential and provide a model for the rest of India.

State is doing well on many social parameters like Sex Ratio, institutional delivery, IMR, MMR etc. However, NFHS -4 shows a higher percentage of Anaemia among women and children than All India percentage. In education sector, state is depicting weak learning outcomes as per ASER 2016-17 report, despite having high literacy rates. State has done well in the democratic decentralization to the third tier. 5th State Finance Commission recommendations (2016) are under implementation.

State govt. has also submitted a detailed memorandum to the Commission for consideration. Commission expects to gain an in-depth understanding of the peculiar issue related to the economic growth and development in Tamil Nadu during its interactions and meetings with the state govt.

Fiscal review to assess state revenue decline, expenditure pressures and targeted fiscal measures shaping transfer recommendations. The Fifteenth Finance Commission will conduct an on-site review in Tamil Nadu to understand macroeconomic and regional issues via meetings with state officials, economists and stakeholders, and to examine fiscal challenges including declining own tax revenue, revenue deficits, low capital expenditure, high borrowing and fiscal imbalance, as well as GST collection, power sector unbundling, and implementation of the UDAY scheme to inform assessments of transfers and expenditure priorities.