From plenty to penury

Radha Venkatesan

WHEN PROSPERITY takes the road of profligacy, populism and corruption, the destination clearly is bankruptcy. An elementary lesson in economics - but Tamil Nadu Inc. has begun to learn it only after piling up a mind-boggling debt mountain of over Rs. 29,000 crores.

Till a few years ago the envy of its cash-strapped neighbours, Tamil Nadu looks a pauper State now. From having a cash reserve of over Rs. 964 crores only four years ago, it's now pathetically surviving on overdraft facility from the Reserve Bank of India. And, the ways and means advance and overdraft have already crossed Rs. 500 crores.

Unfortunately, Tamil Nadu Inc. is being battered by the worst- ever financial crisis at a time when it is under a proxy CEO, Mr. O. Paneerselvam. With the ``real Chief Minister,'' Ms. Jayalalithaa, apparently preoccupied with the appeals in the corruption cases against her, the puppet regime is yet to string up the right response to the funds crunch.

And, for the first time in the State's history, the Government is unable to settle the previous financial year's dues - over Rs. 700 crores - to suppliers and contractors. The result: major projects are hanging fire as the Government is unable to release funds to the Highways, the PWD and the local bodies.

For over a month, the RBI and the SBI refused to bail out the State to purchase paddy from farmers. The Government could not issue letters of credit normally given to heads of departments for managing their expenses.

As every month draws to a close, over 10 lakh employees are on tenterhooks and the financial managers virtually scrounge to clear the whopping Rs. 750-crore salary bill.

This Diwali the Government could not even mobilise Rs. 60 crores to give festival loans for all its employees. To add to its woes, State Transport Corporation busmen have launched a crippling stir as their employer is unable to offer even half of the 20 per cent bonus given last year.

With the Tamil harvest festival of Pongal just one and a half months away, the Government may have to face another stir from government employees as it has no money to pay the annual ex gratia

Indeed, the past was prosperous. The State had ``healthy cash reserves'' and the nationalised banks were knocking at the doors of the financial managers for deposits, Finance Department officials nostalgically point out.

As the money position has plunged into the negatives now, top officials are frantically shuttling between the RBI headquarters, SBI offices and other financial institutions for precious cash to pay salaries, pensions and subsidies.

While Centrally-sponsored rural development schemes are continuing, projects with State funding have been badly hit, claim officials. ``Most proposals we send are returned with a `no funds' note from the Government,'' rues a department Secretary.

What caused the phenomenal financial fall? While the ruling AIADMK and the Opposition DMK blame each other for the crisis, economists primarily attribute it to unbridled overspending and sagging revenues.

``Profligacy, untargeted subsidies and of course, the global recession have all taken Tamil Nadu to where it is,'' says Mr. A. Vaidhyanathan, an economist with the State-funded Madras Institute of Development Studies.

When in power, the two parties have been indulging in imprudent competitive populism over the past three decades. If the AIADMK Government in 1991 came up with the free dhothi and saree scheme for the poor, the succeeding DMK regime, instead of targeting the scheme, added another 40 lakh beneficiaries to it and spent another Rs. 30 crores. And, in the heartland of populism, where free power to farmers and Rs. 3.50 per kg of rice for all, including the affluent, continue at a cost of Rs. 1,732 crores, the State has coughed up a whopping Rs. 5,465 crores this year towards subsidies alone.

While Andhra Pradesh and Karnataka too have huge dole bills, they have made significant efforts to target subsidies, particularly for food and power.

The previous DMK Government had begun some half-hearted measures of targeting subsidies, but retreated to populism and pampering of government staff after it received a severe drubbing in the 1998 Lok Sabha elections. This caused serious cash imbalances.

Officials say the principal reason for the sudden depletion of cash reserves was the former DMK regime's decision to raise the salaries and pensions of government employees on a par with Central Pay Commission recommendations with retrospective effect. The salary and pension bills shot up to over Rs. 10,000 crores in 1999-2000 from Rs. 5,018 crores in 1995-96.

Unfortunately for the present AIADMK regime, the revenue growth rate, which was about 17 per cent last year, has dropped to an all-time low of 4 per cent. The answer to the empty coffers and the gross fiscal deficit of Rs. 5,781 crores lies only in boarding the reforms bus.

The World Bank has already dubbed Tamil Nadu a ``non-reforming State''. It is perhaps the only State yet to agree to initiate fiscal reforms for availing of the ``fiscal reforms facility fund'' of the Central Government.

For, that means harsh measures at all levels. Cuts in doles, targeting subsidies, divestment and privatisation of loss-making State undertakings, drastic slash in administrative expenditure, particularly perks of the government employees and increasing power and bus tariff.

But the ruling AIADMK is not yet prepared for risky reform options. Soon after riding back to power in May, the AIADMK chief, Ms. Jayalalithaa, despite the financial crunch, waived loans for farmers and hiked salaries for MLAs and Ministers.Though the Finance Minister, Mr. C. Ponnaiyan, fulminates at the erstwhile DMK regime for the unprecedented financial crisis, he is yet to unveil a fiscal reform package.

Clearly, the profligacy ride cannot continue anymore. Populism will have to take the backseat. And, tough reforms cannot wait any longer. Perhaps, not even for the ``puppet'' regime to end.

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