G Chidambaram, former PC member welcomes White Paper, seeks remedial steps

Chennai: G Chidambaram, former PC member welcomes TN White Paper, seeks hard decisions, remedial steps
Sequence to the White Paper…?

By G Chidambaram, former State Planning Commission Member

It augurs well that the Tamil Nadu government has chosen to bring out a White Paper explaining clearly the health of the State exchequer. Presenting a White Paper is a corollary when the baton changes hands; not between runners of the same team but between two strongly opposing teams! However, the practice is observed very rarely.
The Hon’ble Finance Minister, Dr Palanivel Thiaga Rajan, has carried out a very commendable task in the preparation of the paper and in very patiently explaining to the media about the nuances and intricacies of the contents. Tamil Nadu is very fortunate to have such a highly talented and dedicated Finance Minister. Perhaps, crisis-situations bring to light hidden talent! He brings to our mind the greatness of his grandfather great Sir P T Rajan, one of the founding fathers of the old Justice Party, which pioneered the cause of the Dravidian movement.

Now, two sets of questions crop up for our consideration.
1 How good or otherwise is the State’s finance?
2 How was it handled in the past?

The answer is very clear. Financial management in the past has flawed all canons of fiscal management; public debt has risen to an astronomical level of Rs 6.85 lakh crore as on March 2021; a continuous erosion of 44 % in the revenue receipts; a very unhealthy practice of making revenue expenditure through borrowings similar to a pitiable situation of a householder eking out a living through borrowings; erosion in capital expenditure resulting a decline of public investment; adversely impacting development process; and very distressing performance of public sector undertakings.

The second set of questions are more important but they are of a normative nature. Yet, these questions demand serious scrutiny. What are the measures to be adopted to bring about a balance between receipt and expenditure adhering to the norms prescribed in FRBM (fiscal responsibility and budget management)? Apparently, this is going to be a very challenging task obviously because in our federal set-up of State versus Union, a recourse for a State in fund-raising is very limited thus necessitating a recourse to the award of the finance commission and the statutory grant. The introduction of GST has further worsened the health of the State finance.
Our Chief Minister has summed up the position recently in his virtual meet with the members of the Economic Advisory Council, “The Union Government has usurped our rights to levy taxes… We cannot depend on tax collection either. We have to strengthen ourselves using our own resources. Show us a path towards that.”
Against this background the following policy imperatives are suggested hoping they will receive the attention of the decision-makers.

1 An astute statesman knows pretty well when to administer health-promoting but bitter pills and when to offer sweeteners! Time has ripened for the government to resort to taking hard decisions. The scope for setting up tax rates is practically nil since all the State-level factors are indirect in nature and, therefore, regressive. The common man should not be made to shoulder a heavier burden. When the impact of the corona pandemic is overcome there is a likelihood of tax revenue becoming buoyant in particular to the enhancement of entertainment tax, services like restaurants and hotels, and tourism are likely to pick up. Therefore, shortfall in revenue receipts may be made good to an extent.

However, since the problem is of a structural nature, serious remedial measures have to be examined. There is ample scope for expenditure control: not through expenditure reduction but by means of expenditure switching. There is good scope for reducing / averting wasteful expenditure. There are departments which have become redundant over time which could be terminated by absorbing the manpower in other areas of development. Technology has vastly improved displacing manual labour. The savings thus effected should be switched over towards improving the health and education sectors. No doubt, TN ranks high today in health and education in terms of average longevity, maternal mortality infant mortality and literacy levels. Yet, it is necessary to narrow down to identify the pockets in terms of area-specific and concentration-specific. For example, the pandemic has brought to light the sufferings of the people located in remote and inaccessible areas. Instead of thinly distributing welfare measures indiscriminately over a wider area, efforts – physical and financial – can be targeted to afflicted areas and groups.

2 It is the right time now to reduce indiscriminate use of subsidies and freebies. No doubt, the suggestion will be very difficult to digest in a system long used to ‘all free and free for all’. A conviction has crept up in the minds of rulers that free / subsidised goods and services are indispensable to gain and retain power. Now is the appropriate time for the government to take a fresh look at the problem. Take for example, the supply of free power in agriculture. This causes a big drain on the electricity board and ultimately on the government finance. Any farmer will no doubt say that farming will be adversely affected if power supply were to be priced but it is a well-known fact that farmer who is privileged to enjoy free power sells power at the rate of Rs 50-100 per hour to his neighbour who is yet to get a concession. The State cannot stand a mute witness to open theft! Abetting a crime is as much a crime!! It is a known fact that there is a big gap between the farm gate price for agricultural products (both perishable and durable) and the market price (which the consumer pays). Narrowing down the gap to the point of optimality will benefit the farmer and the final consumers as well. Everybody gains except perhaps the middle-man who has to remain satisfied with normal (devoid of exploitation) profit.

The policy of subsidising as in the case of free power supply is based on assumptions, hunches and wrong notions and the time is ripe now to formulate policies on the basis of empirical evidences. Here comes the scope and need for resorting to behavioural economics. Policy instruments should be developed and sharpened with the aid of observation and not intuition. In the later days, if the survey is modified and the farmers are asked to choose between (a) free power and (b) attractive / remunerative prices for his product it is probable that he may choose (b) because the most distressing factor afflicting the farmer today is the unremunerative price he receives.

3 Solution to this agonising problem of unattractive prices lies not in subsidising the inputs like power but in strengthening the marketing infrastructure to enable the farmers store their produce and release them when it is profitable for him. We should go beyond the facilities of regulated markets, farmer-producer company and Uzhavar Sandais but initiating works towards processing and storing facilities on a large scale. This process will take time to materialise and involve high cost. International funding institutions may show preference for such efforts and reduce the burden on the State government. This is one case for illustration. There are many issues of similar nature in fields like health, education, transport, etc.

The point to stress is that people’s expectations, aspirations, likes, preferences, attitudes, etc., do change over time and that policy decisions should be anchored on the basis of empirical evidences which behavioural economics teaches and not on the basis of hunches. There are many research and educational institutions in the state receiving hefty financial assistance from the government. The time is ripe now to encourage and to induce them to take up empirical studies on a continuous basis on the need, quantum and cost of public goods like power supply, free rations, free transport, etc., etc.

4 Universal pension Adoption of a policy of universal pension will help in dispensing with most of the subsidies and freebies. The aged poor should receive self-support through pension. A person is poor because he does not possess an asset which will give returns, nor the skill for which there is demand. Old age aggravates the intensity of suffering. Hence, one important welfare measure must be old age pension to all the needy. No doubt, it will prove to be a costly effort. To start with, the minimum age of eligibility can be about 70 and a small amount of Rs 2,000 per month to start with and as State finances improve, the age eligibility can be lowered and the quantum increased. Eligibility can be on the basis of self-declaration. Let us make a beginning of trust in the people. An errant can be defranchised and made public!

5 Effectiveness of public expenditure could be vastly improved if the current practice of proposing and implementing government schemes is switched over to project approach. A project in the strict sense of social benefits cost analysis must have a specific starting point and ending point, clear delineation of the cost stream and benefit stream over time, adopting shadow pricing and satisfying the expected returns. No doubt, this involves a rigorous exercise requiring good technical expertise but when attempted it will result in cost minimisation and benefit maximisation. World Bank-aided projects may be costing around Rs 1,000 crores to be spent over some years for example, adhere to this ordeal procedure. But for our expenditure / investment costing lakhs and lakhs of rupees this rigour is missing. TN government should make this pioneering effort in this regard. Every department should have a small cell with expertise to carry out the responsibility of formulating, appraising, monitoring and evaluating projects. This approach will help a good flow of funding from international agencies.

6 Exports are an income / employment generating sector. Export promotion at the national level is mostly done through subsidisation. Tamil Nadu should go a step further in identifying product-wise and location-wise areas for taking concentrated efforts towards improving cost and quality issues. A State has little or no leeway in the exchange rate management but should take full advantages arising out of gradual depreciation of the rupee over years. The consequences of a depreciating currency at the national level are debatable but at the state level prudence suggests that it takes advantage of this phenomenon.

7 Health and education are two pillars on which development could be built up strongly. Briefly put, equipments in a public hospital are good and modern. But the same cannot be said about the utilisation rate. Reason: purchases confer pecuniary benefits to the purchaser, but it usage may not. Proper utilisation and spreading out the facilities to unserved locales will enhance development.

The same should be said about education in particular in government institutions. A tendency to switch children from private schools to government schools noticed recently is an aberration caused temporarily by people stuck in poverty due the spread of corona. The quality of education imparted in government schools has to be vastly improved. Government schools are treated as untouchables by families with affordability. Malpractices in teacher recruitment is one of the causes for the poor quality.  There are instances of many disappointments. They do not come to light because ‘a thief cannot cry out when stung by a scorpion during the act of stealing’. He has to suffer in silence.

On the positive side are the spread of right education and good healthcare offered by many religious groups and institutions. This helping hand should be availed by the government. Past experience has shown that irrespective of religious denomination – Christians, Muslims, Jains, Vaishnavites, Hindus have evinced keen interest in the spread of education and in offering health services. Ramakrishna Math is a good example in this respect. Tamil Nadu government should now go forward to enlist their benevolence and support in this regard. Thus, the burden on the capital expenditure for the State will be lessened.

8 Towards the end, mention should be made about transparency. The Chief Minister frequently underscores the word transparency in government dealings. A very laudable, a very rarely practised maxim. Transparency is a powerful weapon – an effective shield to keep the opponents at bay and also a powerful sword to be wielded if occasions demand. This will help to keep the foul mouth shut; it will also help the leaders at the union level to be cautious in overstepping into the realms of State. If Transparency is fully practised, Tamil Nadu will emerge as the pride of Tamil diaspora also; it will become a model for other States for emulation; Union government will also become cautious. Attracting technology and skill and flow of capital will be the bonus. Let transparency continue in letter and spirit.