Revenue

Tamil Nadu is a state that has ensured a simultaneous improvement in growth and human development. Innovative welfare interventions combined with economic dynamism have been a key feature of the state’s development. In the context of the Dravida Munnetra Kazhagam coming to power on the back of a slew of promises on welfare and development, and the ongoing pandemic, the trajectory of growth and resource mobilisation efforts by the state is examined. The analysis points to an emerging disjuncture between growth and tax efforts of the state as well as a decline in central transfers.

The mandal system came into existence as an administrative reform, as part of reducing the size of erstwhile taluks and making them more effective and manageable. The decentralisation of taluks into mandals was done with a two-pronged strategy of modernising the revenue administration, record-keeping as well as further decentralising the panchayati raj system. It was hoped that the division of erstwhile large taluks into mandals could make them more manageable, and also that the administration of the state government, especially the revenue administration, will become modernised.

Sabka Vishwas Scheme is a dispute resolution-cum-amnesty scheme, with an objective of generating revenue in the short term, by inclusion into the tax net of delinquent taxpayers and those with pending disputes. Such measures renegotiate the contract between the state and its citizens, hurting equity in the tax system. Adherence to such measures reduces the taxable capacity of the state in the long run, by adversely affecting motivation towards compliance.

An analysis of the debt and deficit of states based on the budget estimates of 2016–17 shows that almost half of them have a fiscal deficit target higher than the limit set in the Fiscal Responsibility and Budget Management Act. These states need to focus on the quality of expenditure and elimination of revenue deficit as per the framework proposed by the Fourteenth Finance Commission to enhance state-level capital spending.

The revenue side of the budget is scrutinised to understand if the government is being realistic about revenue generation in 2017–18. Clearly, there is over-optimism, given that economic growth will be slow. Too much is expected from voluntary disclosure and penalties, while incentives are not in place. It would make sense to allow some slippage in the deficit targets in order to revive the economy. In addition, the increasing problem of cesses is discussed with reference to the Krishi Kalyan Cess to assess whether cesses serve the purpose for which they are introduced.