Tamil Nadu : Development Imperatives and Reforms

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Tamil Nadu Development Imperatives and Reforms

• Finance Department
• Government of Tamil Nadu

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MACRO-ECONOMIC PROFILE

• SECTORAL COMPOSITION OF THE STATE DOMESTIC
  PRODUCT
• (Source DOES)

1970-71
2000-2001
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MACRO-ECONOMIC PROFILE

• EMPLOYMENT BY MAJOR SECTORS (PERCENT)

1999-2000
1987 - 1988
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TAMIL NADU POVERTY ESTIMATES
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Employment Profile
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MACRO-ECONOMIC PROFILE

• An analysis of the sectoral composition of GSDP
  and sector-wise employment patterns reveals the
  following
• The State economy has undergone a transition from
  being primarily agrarian in nature to one led by
  rapid growth in services.
• Despite the sharp decline in the contribution of
  the primary sector to the overall GSDP, as it
  well may, the employment in this sector remains
  over 50.
• Nearly 62 percent of the total population is
  estimated to be dependent on the primary sector.
• The fact that the bulk of the population depends
  on the primary sector with its declining share
  straightaway points to substantial poverty.

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MACRO-ECONOMIC PROFILE

• The broad conclusions are
• Tamil Nadus economy has changed from being
  mainly agrarian to one led by growth in the
  services sector.
• The employment in the primary sector is high at
  over 50.
• The percent of the total population dependent on
  the primary sector is as high as 62.
• This high dependency of the population on the
  primary sector points to substantial rural
  poverty.
• All estimates of poverty Planning Commission,
  Deaton etc. confirm high level of rural poverty.
  Highest among Southern States as per official
  estimates
• Unemployment in Tamil Nadu is the third highest
  in the country. India average is 7.32. Tamil
  Nadu is at 12.05.
• Income inequality is highest in Tamil Nadu. High
  rural poverty and high unemployment rates reveal
  this picture.

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MACRO-ECONOMIC PROFILE CORE AREAS OF CONCERN

• Plateauing of the performance of the primary
  sector. Low growth 0.86 in later years
  1998-2001, in the recent past, is a cause for
  serious worry.
• This is attributed to technology stagnation,
  inadequate diversification, adverse impact on
  production and productivity due to recurrent
  drought, lack of new irrigation.
• Manufacturing sector not doing well.
  Liberalization meant downsizing, correction and
  new jobs in new activities. Where are the new
  jobs?
• Absence of adequate employment opportunities
  amongst the educated sections of the population.
  Employment Exchange statistics reveal that an
  estimated 5 million educated youth are on roll
  seeking employment.
• Continuing poverty and high vulnerability.
• Public sector downsizing adding to woes!
• Stagnation in the other vital indices pertaining
  to human development. CBR has stopped falling.
  IMR is not falling rapidly enough.
• Concerns over the state of public finances.

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DEVELOPMENT TARGETS TENTH PLAN PERIOD2002-2007
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TENTH PLAN (2002-2007) -- SECTORAL OUTLAYS
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DEVELOPMENT STRATEGY OF THE GOVERNMENT OF TAMIL
NADU

• Double per capita income by 2010.
• Attack poverty Bring it down to less than 5.
• Provide employment. Bring unemployment status
  to 5 by 2010.
• Revive the primary sector.
• Impart a new growth momentum to the manufacturing
  sector.
• Facilitate the tertiary sector.
• Human Development.
• Fiscal consolidation.
• Governance reforms to facilitate development.

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STRATEGY FOR POVERTY ALLEVIATION AND REVIVING THE
PRIMARY SECTOR

• Address the problem of wastelands. Estimates
  indicate 2 million hectares of cultivable lands
  are lying waste either as current fallows or
  permanent fallows.
• Adopt an agri-clinical approach to evaluate each
  farmer and his land and see how knowledge and
  inputs can be provided to revive cultivation of
  wastelands.
• Address major problem of low irrigation addition.
  This involves multiple interventions which are
  as follows
• Encourage rainwater harvesting to replenish
  ground water and surface water sources.
• Remodel and upgrade surface water sources such as
  irrigation tanks and village ponds with a basin
  wide approach.

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STRATEGY FOR POVERTY ALLEVIATION AND REVIVING THE
PRIMARY SECTOR

• Take up precision farming with low water use
• Change over to higher value added crops to
  facilitate better farm incomes.
• Promote irrigation through conventional farm pump
  sets for large farmers and solar photovoltaic
  pump sets for small and marginal farmers.
• Push for Peninsular River Water grid Tamil Nadu
  stands to gain substantially World Bank to help
  in Peninsular River Water grid completion in X
  Plan period.

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STRATEGY FOR POVERTY ALLEVIATION AND REVIVING THE
PRIMARY SECTOR

• Examine each and every one of 1.5 million
  existing farm pump sets and mount extension
  programme to improve farm incomes to counter
  income shock.
• Develop new technology packages for farm sector.
• Rejuvenate farm extension systems with a
  convergence approach.
• Involve women in farming.
• Develop better market intelligence and
  communications to farmers.
• Promote capital investment in agriculture.
  Revamp the cooperative credit system for better
  outcomes.

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STRATEGY FOR POVERTY ALLEVIATION AND REVIVING THE
PRIMARY SECTOR

• Promote rural industrialisation New Anna
  Marumalarchi Thittam and other non-farm
  activities in rural areas.
• Promote rural self-employment.
• Facilitate Self Help Groups to help themselves.
• Encourage subsidiary occupations such as animal
  husbandry, fisheries.
• Promote Fisheries Mission activities.
• Promote Homestead farming in dry land areas with
  strong animal husbandry component.

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IMPARTING A NEW MOMENTUM TO THE SECONDARY SECTOR

• Focus on manufacturing.
• Tamil Nadu has to emerge as an export-led
  economy. Focus on special economic zones.
• Recognize contribution of SSIs. Facilitate
  their revival and enhance their contribution.
• Undertake second generation reforms in the
  secondary sector. These include the following
• v  Reduction of transaction time and costs at
  Ports Customs.
• v   Interest rate corrections.
• v  Global integration.
• v   Labour reforms and labour productivity.
• v  Simplification of procedures and deregulation.
• v   Provision of quality infrastructure.
• v   Quality Energy Supply.
• v  Technological modernization upgradation.
• v  Reforms in State level taxation

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IMPARTING A NEW MOMENTUM TO THE SECONDARY SECTOR

• Our strategy for industrial revival includes
• Focussing on areas with comparative advantage and
  productive strengths such as textiles, leather,
  automobiles and ancillary industries, heavy
  engineering etc.
• Focus on bio-technology, information technology
  enabled services, off shoring.
• Radically improving the physical infrastructure.
• Upgrading quality of human capital and skill
  formation.
• Streamlining administrative processes and
  regulations so that they do not constrain growth
  and proliferation of businesses in the State.

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IMPARTING A NEW MOMENTUM TO THE SECONDARY SECTOR

• Focus on Quality infrastructure
• The State Government has announced the
  constitution of an Infrastructure Development
  Fund (Rs. 200 crores).
• New legislation on infrastructure development
  through public-private participation on the anvil.

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IMPARTING A NEW MOMENTUM TO THE TERTIARY SECTOR

• This sector has done well in the recent past.
• Facilitate accelerated growth.
• Focus on ICT, ITES, BPO off shoring
  opportunities.
• Promote Tourism growth as a key driver.
• Focus on urban development as growth driver.

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INITIATIVES FOR HUMAN DEVELOPMENT

• The Budget for 2003-2004 spells outs the concept
  of a comprehensive social safety net for the
  needy and poor with an outlay of Rs.4232 crores.
• The effort will be to improve the social safety
  net in real terms.
• Implement the Honble Chief Minister's 18-point
  programme for Women and Child Welfare.
• Mal-Nutrition Free Tamil Nadu entails whole
  life-cycle approach to the concept of nutrition
  security.
• Entrepreneurial Development Programme for Women.
• Provide all support including Medicare for
  vulnerable groups namely the aged, severely
  disabled etc.

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FINANCIAL MANAGEMENT IN TAMIL NADU

• Tamil Nadu has always had a tradition of prudent
  management of its Public Finances.
• Our vital fiscal parameters were easily among the
  best in the country. Revenue deficit as percent
  of revenue receipts was less than 3 and the
  Fiscal deficit was 1.6 of GSDP in 1995-96.
• This fiscal advantage and strong economic
  fundamentals of the State were hailed
  countrywide.
• Tamil Nadu in 1995-1996 availed the largest
  development assistance from the World Bank and
  other multilateral financial institutions.
• Achieving the development agenda set out by the
  State Government was always realisable.

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PUBLIC FINANCES IN TAMIL NADU

• The downslide in the public finances of the State
  Government was rather sudden.
• It was triggered by the implementation of the
  Sixth State Pay Commissions recommendations in
  1998 with effect from 1.1.96. The State
  Government is still trying to cope with its
  impact.
• The implementation of the recommendations of the
  Eleventh Finance Commission from the fiscal
  2000-2001 dealt a body blow to the States
  finances.
• Resort to borrowings to handle the huge recurring
  revenue deficit has led to an increased interest
  burden.

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FISCAL TRENDS IN TAMIL NADU
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THE ISSUE OF PENDING LIABILITIES

• States basically have a hard budget
• The ways means control and overdraft
  regulations of the Reserve Bank will not permit
  any substantial carryover.
• Carrying over bills is counter productive
  within a short period can lead to a fiscal
  breakdown.
• Fiscal 2000-2001 end witnessed carryover of about
  Rs.700 crores. Fiscal 2001-2002 end involved
  carryover of about Rs. 1900 crores. This included
  about Rs. 800 crores of local body grants. The
  payment of this has been dropped as a one time
  aberration caused by States fiscal problems.
• Good news Fiscal 2002-2003 end involves
  virtually no carryover. All bills as at end of
  March 2003 have been settled.
• Data on bills carried over is monitored closely.
• Better still is to see whether there are any
  Treasury controls over and above normal controls.
• Bills carried over is not a substantive
  monitorable indicator.

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FISCAL TRENDS IN TAMIL NADU
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FISCAL TRENDS IN TAMIL NADU
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FISCAL TRENDS IN TAMIL NADU
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FISCAL TRENDS IN TAMIL NADU
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FISCAL TRENDS IN TAMIL NADU
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PLAN PERFORMANCE
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PLAN PERFORMANCE
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MANIFESTATIONS OF THE FISCAL CRISIS

• The manifestations are
• Tamil Nadus planned development outlay has
  stagnated.
• Investment on physical infrastructure has
  stagnated.
• Huge liquidity crunch upto end of 2002-2003.
• Pressure to cut back on social sector outlays.
• Asset maintenance languishing.
• Growth trajectory not encouraging.

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BLUEPRINT FOR FISCAL REFORMS

• White Paper on Tamil Nadu Governments Finances
  presented in August 2001.
• A Medium Term Fiscal Reforms Programme has been
  prepared to correct the debilating fiscal
  situation. It seeks to achieve the following
  goals
• Rein-in the balooning revenue deficit and fiscal
  deficit.
• Reprioritizing the outlays in the State Budget
  towards production oriented and social welfare
  sectors.
• Restructuring of public utilities.
• Budgetary Reforms.
• Good Governance.
• The State Government is signing up an MoU with
  the Government of India on MTFRP.
• Tamil Nadu has gone in for a big bang approach
  a whole slew of reforms have been put through
  in one go.
• We are currently struck by SARM Substantive and
  Accelerated Reform Mode.

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STRATEGY FOR FISCAL REFORMS

• MEASURES FOR REVENUE ENHANCEMENT

• Tamil Nadu is one of the very few States which
  has
• made a significant tax effort in 2001-2003
• 2001-2002 Rs. 135.38 crores
• 2002-2003 Rs.690 crores
• 2003-2004 Rs.420 crores
• No other State has done such a massive tax effort
  
• in recent years.

• TAX REFORMS AND REVENUE AUGMENTATION COMMISSION
• HEADED BY Dr. RAJA J. CHELLIAH CONSTITUTED.
• OBJECTIVES Recommend measures for augmentation
  of tax
• and other revenues, streamline tax administration
  system to ensure
• better compliance and collection, etc.
• Recommendations on Sales Tax and VAT acted upon
  and announced
• in the Budget
• Recommendations on the levy of Electricity Tax
  acted upon and
• form a part of the Budget 2003-2004.
• Other reports when received will be examined.

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STRATEGY FOR FISCAL REFORMS

• MEASURES FOR REVENUE ENHANCEMENT

• Sales Tax and VAT
• Tamil Nadu has already moved
• towards unified rate system.
• Resale tax- precursor to VAT
• introduced in 2002-03.
• Computerization of Sales Tax system
• underway.
• A Samadhan Scheme announced in 2002-03
• to unlock ST receipts unavailable on
• account of litigations.
• Buoyancy in Sales tax restored. Near 15
• growth in 2002-2003 after 3.7
• in 2001-2002.
• State ready for VAT.

• NON-TAX REVENUES
• Visitor admission fee in hospitals and
• charging system for equipment introduced.
• Legislative amendments for revision of
• irrigation rates enacted to take effect
• from 1.7.2003.
• Department-wise revision of user charges/
• non-tax revenues under examination.
• Concept of payment wards introduced
• Court fees proposed to be raised.
• Charges for both rural water supply and
• urban water supply revised.

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STRATEGY FOR FISCAL REFORMS

• MEASURES FOR CONTROLLING EXPENDITURE

• RESTRUCTURING PDS
• Tamil Nadu had a total of 161 lakh ration
• card holders who took subsidized rice.
• This has been reduced to 120 lakh BPL cards
• on 1.8.2002 through a multiple screening
• system and self-selection.
• Changeover in the process of paddy procurement
• effected. Under the new system, procurement
• would be undertaken on behalf of Government
• of India and States own rice pool has been
• given up.
• Rationalization of issue price of PDS rice is
• through. As against the earlier uniform issue
• price of Rs. 3.50/kg for 20 kg rice, the first
• 10 kg is now being sold at Rs. 3.50/kg and
• the subsequent 10kg at Rs. 6/kg.
• Food subsidy reduced from Rs.1500 crores
• in 2001-2002 to Rs.600 crores in 2003-2004.

• EMPLOYEE COMPENSATION
• Facility for encashment of
• surrender leave withdrawn.
• Estimated Savings Rs.343 crores p.a.
• Annual Pongal Bonus discontinued.
• Estimated savings Rs.245 crores p.a.
• Dearness allowance implemented with
• lag annual savings Rs.300 crores.
• 9632 live posts of Gang Mazdoors
• in Highways Deptt. and 13,491 live
• posts of Makkal Nala Paniyalars
• (People Welfare Workers) in RD
• Department abolished.
• Estimated Savings Rs.100 crores p.a.
• Expenditure compression of more than
• Rs.1000 crores per annum achieved.

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STRATEGY FOR FISCAL REFORMS

• MEASURES FOR CONTROLLING EXPENDITURE

• POWER SECTOR REFORMS
• SERC constituted.
• Tariff decisions of SERC accepted and
• implemented from 16th March 2003.
• Agreement with Govt. of India on power
• sector reforms has been implemented.

• RESTRUCTURING PUBLIC SECTOR
• ENTREPRISES
• The Government has ordered the
• closure of 7 State PSUs. Winding
• up is underway.
• VRS package for State PSU
• employees announced. Downsizing
• taken up.
• Disinvestment Policy of the State
• Government has been finalized.
• Policy statement on exit from
• Manufacturing sector announced.

• RESTRUCTURING OF
• PUBLIC TRANSPORT SECTOR
• Bus fares revised on 1.12.2001.
• Decision taken to reduce the number of
• STUs from 21 to 7.
• Competition policy public bus transport
• system announced.
• Public sector bus companies turn around
• achieved in 2002-2003.

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STRATEGY FOR FISCAL REFORMS

• MEASURES FOR CONTROLLING EXPENDITURE

• STAFF AND EXPENDITURE REVIEW
• COMMISSION APPOINTED
• The terms of reference include
• analysis of staffing pattern and
• identification of surplus employees,
• formulation of an exit package and
• restructuring of employee benefit
• scheme.
• The SERC has submitted 10 reports
• covering 70 Deptts. This is being
• examined.
• Next step is to match unfilled vacancies
• With surplus declared by SERC and
• abolish the posts as a permanent
• correction.

• RESTRUCTURING THE SUBSIDY
• REGIME
• Free Saree Dhoties scheme
• with an annual outlay of
• Rs. 100 cr. restructured into a
• market-based scheme with an
• annual outlay of Rs. 45 cr.
• Marriage assistance scheme
• discontinued. Estimated savings
• Rs. 50 cr.

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STRATEGY FOR FISCAL REFORMS

• Pension Reforms
• Contributory Pension scheme for new employees
  from 1.4.2003.
• Pension entitlements reduced.
• Commutation entitlement and commutation table
  revised.
• Payment of part of gratuity and encashment of
  leave in Small Savings.
• No other State has undertaken such major
  Pension scheme changes.

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STRATEGY FOR FISCAL REFORMS

• MEASURES FOR CONTROLLING EXPENDITURE

• OUTSTANDING DEBT AND GUARANTEES
• Mechanism for substitution of high-cost
• debt from Govt. of India worked out.
• Resetting of outstanding high Cost debt
• with HUDCO completed.
• Guarantee Redemption Fund with the
• RBI being created.

• BUDGETARY REFORMS
• Simplification and demystification of the
• the Budgetary process.
• Fiscal Responsibility Bill.
• Improvement in Budget execution and
• marksmanship.
• Focus on operational flexibility with fiscal
• discipline.
• Enforce financial accountability.

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STRATEGY FOR FISCAL REFORMS

• Adopt a good governance code to enable reforms
  to be more
• palatable.
• The State Government has already enacted the
  Tenders
• Transparency Act.
• A Special Cell called Procurement Procedure
  Cell has already been
• set up in Finance Department for framing policy
  and rules for overseeing
• Public Procurements following a World Bank
  study.
• Draw up an action plan on Procurement Policy.
• The State Government will attack corruption at
  the cutting edge level.
• To cut down delays by using power of IT.
• New system of contract delivery of services to
  be introduced.
• Adopt Citizens Charters.
• Examine citizen interfaces and improve service
  delivery.

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Thank You