An autonomous research institute under the Ministry of Finance


State Fiscal Studies: Tamil Nadu

Publication date

Jan, 1999


Report submitted to the World Bank.


J.V.M. Sarma, G. Naresh and O. P. Bohra


The central aim of the State Fiscal Study: Tamil Nadu is "to establish the capacity of the state of Tamil Nadu to absorb development aid effectively - that is, to determine its capacity to generate necessary counterpart funds in the short-term and, in the longer-­term, its capacity to generate funds to maintain the assets and programmes financed by development aid". The growth performance of Tamil Nadu has been impressive despite the modest natural resource base and it i;:; among the most industrialized states in India. Although its finances are well-managed there is still room for selective fiscal correction. During the period under study, there was a significant rise in revenue expenditure at the expense of capital expenditure. In financing the expenditure, the revenue-raising effort has so far been concentrated only on tax revenue and attempts to augment non-tax revenues through cost recoveries has been a neglected area and therefore need clear revamping. Fiscal balance for most part of the study period was negative as also on the decline because of fast growth of revenue expenditure while signs of improvement in recent years have not proved to be long lasting. If the same fiscal trends continue, fiscal deficit is likely to assume disquieting levels due to increasing component of revenue deficit. In addition, capital expenditure is likely to shrink further, government debt is likely to be used more for consumption purposes rather than for investment, and maintenance expenditure will be on the decline. A simulated fiscal scenario with a set of suggested reforms, if implemented, can reverse these trends and turn the fiscal balances into surpluses.

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