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Vol. XXX No. 5 June 16-30, 2020

Why Tamil Nadu Govt. Should Present a Revised Budget

by A Special Correspondent

Should the Government present a revised Budget for 2020-21? Or should it deal with the fiscal situation, worsened by the virus, and, in due course, place before the legislature and the public the details of its revised plan?

Constitutional propriety provides the answer to the opposing contentions. Equally important is how the government grapples with the fiscal challenges brought to the fore by coronavirus. Sound economic options are, invariably, compromised under electoral compulsions. The election next year has already cast it shadow on the present. The Government has a tough job on hand.

The argument for not presenting a revised Budget to the legislature runs like this. Ministries are already re-working the original Budget allocations toward reducing variable expenditure by 25 per cent. The reasoning is valid only if expenditure reduction is the sole component of the strategy. Because expenditure reduction necessarily involves other fiscal changes, the Budget should go back to the approving body. Assuming, for a moment, that such changes do not lead to any overall differential impact, still, it is not enough justification to side-step the approving body. Fall of tax revenue and new demands for expenditure must have widened fiscal deficit, increased need for borrowings and adversely impacted long term viability. Measures to deal with such a situation cannot be kept away from the legislature for disclosure on a future date. It is said that the government has the “authority to spend within its means and borrow within the limits”. Those are axiomatic principles underlying every Budget, by that reasoning, no Budget needs legislative approval. It is said that by conceding the demand for a new Budget the “onus would get shifted to the legislature with all its attendant issues”. Is not the onus always with the legislature to consider and approve money measures? To say that transparency in income and expenditure will be met by disclosures in due course, misses the point. It is not just transparency but pre-approval and post-accountability to the people’s body. Government’s want of confidence and therefore shying away from the legislature is surprising considering its gallant effort to stem the viral deluge.

Growing revenue deficit which accounts for about 40-50 per cent of net borrowing may have widened, stoking debt to rise beyond the estimate of Rs. 4.56 lakh crores for 2020-21. The Reserve Bank of India’s offer of a 60 per cent increase in the Ways and Means Advances limit of state governments is a temporary pain reliever, not a cure.

We hope the Rangarajan Committee, constituted by the Government, would come out, very soon, with practical, quick yielding, innovative measures.

The Staff Rationalisation Committee formed in 2018 has submitted its recommendations. If it is about cutting down staff, no serious action will be taken either before election or after it. It is not the time to inflict, or ask to accept, job or salary cuts. Instead, perhaps prescribing an extra hour’s work for the next six months, with higher output targets to complete, would be a practical option. Thereby, service offerings like health centres will be open longer and serve more people. Alternatively, challenging staff to deliver a ten percent higher output – as their contribution to the crisis – could be made into a movement across institutions and hierarchies. These impart a participative energy to government efforts.

Every possibility of cutting or postponing expenditures that do not affect people’s spending capacity should be identified and implemented. Extension of retirement age is a good example as it does not affect today’s income of government employees but postpones the outflow of sums for retirement benefits.
That austerity measure already taken for a 25 per cent saving in variable expenditure is a good alert signal to infuse a sense of gravity of the situation. The measure does not involve cutting down jobs or salaries. The saving could be Rs. 5,000 crores or so. Not enough but good for a start. It is unrealistic to expect this alone to meet the revenue fall of Rs. 35,000 crores. It sets an atmosphere for acceptance of effort, inconvenience, and pain to get out of the mess.

Subsidy is estimated to be at Rs. 94,000 crores which includes welfare schemes like food subsidy, power subsidy, scholarships, housing schemes, social security pensions and agricultural loan/interest waiver. A selective abolition of subsidies, that have no income (spending) impact, should be removed, or suspended, must be taken up. Dozens of schemes in several sectors were announced in the last Budget for about Rs. 38,000 crores. Each one of them should be subject to severe scrutiny for its continued claim to priority under crisis. The advantage designed to flow out of them could wait. It can still be reaped later. Many of them could be postponed.

The following two projects have the first claim on available resources. Highest priority must be accorded to upgradation of testing, quarantine and treatment facilities including ventilators, protective gear, and sensitisation of health centres to preparedness to face possible future contingencies. Second, is the need for clear demarcation of liability for food, shelter, health, and recreational facilities for migrant workers. We should not be caught napping again. The protection and care they are entitled to, would make them come again to work.

Public works like roads, bridges, upgradation of irrigation, kudimaramatthu (a traditional practice of periodic desilting thousands of local tanks and water bodies) can return the investment in the short term and would justify borrowing.

Fortunately, Chennai City’s needs are now met from a billion-dollar World Bank assistance. It covers flood mitigation works, solid waste management, remediation and reclamation of landfills, a waste-to-energy plant, recycling of sewage and Adyar and Cooum river development. These are basic sanitation and hygiene related needs. These should be implemented on a war footing having learnt a painful lesson on the life-saving importance of sanitation and hygiene.

All-out effort to bring in new investments through enabling policies, providing land at low rental long-lease and other utilities can lead to more employment and tax revenue. Investment has a faster multiplier effect on aggregate demand compared to direct consumption stimulus. No amount of tinkering would correct the fiscals. For correction economic growth needs to be taken to a higher trajectory. In parallel, there should be a plan for moving toward containment of overheads.

The unprecedented scale of the crisis has a slim silver lining. It does temper public reaction to unpopular measures, accepting them as a trade-off for return to normalcy in health and economy – which measures, in ordinary times, cannot be taken without risk of losing the election. Take advantage of the crisis, go for economically sound measures, win the war, and tell the people how the war was won with their support.

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