Is Tamil Nadu heading for a debt trap?

Chennai: In the land of freebies and grants, S. Muthukumarasamy is an exception. He has given up 100 units of free power offered by the Tamil Nadu government.

"I was very happy when Chief Minister J. Jayalalithaa announced free power for domestic use of up to 100 units. But I read it would cost the state's exchequer around Rs 1,600 crore," Muthukumarasamy, who owns a small tailoring shop in Coimbatore, told IANS over phone.

"My average power bill will be around Rs 600 and monthly income ranges between Rs 10,000 and Rs 15,000. As I can afford to pay the power bill, I decided to surrender the free power so that those in real need can benefit," he added.

Muthukumarasamy is certainly among the few who are willing not to claim the freebies.

It all started when MGR, who became chief minister in 1977, announced the mid-day meal scheme for school children in 1982. While that was more of a welfare measure, it was the beginning of the freebie culture.

In 2006, DMK led by M. Karunanidhi announced colour television for the citizens if it was voted to power. It appears to have worked. DMK formed the government. Perhaps taking a cue from this, the AIADMK of Jaayalalithaa came up with its list of freebies in the run-up to the 2011 assembly election. The goodies included mixer-grinder, laptop computers, cattle, four grams of gold for marriage of poor girls and the like.

The same formula was repeated in 2016, when the AIADMK came up with another list of benefits for the people.

Soon after assuming office for the sixth time, Jayalalithaa on May 23 signed orders writing off farm loans (Rs 5,780 crore), free power for first 100 units for domestic consumers (Rs 1,607 crore) and 750 units for handloom weavers, thus fulfilling her poll promises.

But where would all the money for the freebies come from?

"The subsidy and grant situation amounting to around Rs 62,500 crore is not alarming for the state's economy though it may be of concern if other steps are not taken," said K.R. Shanmugam, a former director of the Madras School of Economics and currently with the Institute of Financial Management and Research.

"As per the interim budget presented by the AIADMK government before the assembly polls, the state's revenue expenditure was estimated at Rs 1.61 lakh crore while its revenue was put at Rs 1.06 lakh crore. The central grants were put at Rs 48,000 crore. The revenue deficit was estimated at Rs 9,155 crore," he added.

According to Shanmugam, the revenue deficit is less than one per cent of the gross state domestic product but this may go up on account of the freebies announced by the ruling party. Which means the revenue source must be augmented.

But the economy is not doing very well and the state's tax revenue is not growing much. The government said reduction in oil prices has cut down the sales tax revenue of the state.

Shanmugam said the government has to increase the tax rates on liquor to augment its revenue. But he suggested the government should not depend only on liquor sales and must expand its revenue basket. "The government can generate additional revenue by selling beach sand minerals and others on its own," he added.

He said power consumption may go up due to free power and the government has to augment its own power generation, because buying from outside sources will further increase the power cost.

Besides the freebies, successive governments in Tamil Nadu have also written off farm loans.

But is it a good idea to write off such loans?

"The waiver of farm loan is restricted only to the loans taken from cooperative banks," S. Ranganathan, General Secretary, Tamil Nadu Cauvery Delta Farmers' Welfare Association, told IANS.

The benefit may not reach the real farmer as many of the borrowers from cooperative banks are non-farmers, he said.

Moreover, say experts, the trend of writing off farm loans may encourage some to default on repayment.

"The retail price of good quality rice is around Rs 45 per kg. It is enough for a farmer if he gets at least Rs 28 per kg. Remunerative price for farm produce is sufficient for the farm sector to flourish," Ranganathan said.

But is the state heading for a debt trap?

According to Shanmugam, the Tamil Nadu government is not going to fall into that trap even though its debt level is estimated to be around Rs 2.11 lakh crore.

"Although the debt levels are going up, it is around 19.5 per cent of the state's gross domestic product -- below the figure recommended by the 14th Finance Commission for Tamil Nadu," he said.

Observers say the culture of freebies needs to be checked.

S. Subramaniam Balaji has been vocal against freebies. He had filed a case in 2006 against the DMK's promise of colour television. In 2011, he also filed a case against the AIADMK promises of free mixer-grinder, laptop computer, fan, cattle and more.

The case was finally decided by the Supreme Court in 2013 after it told the Election Commission of India to frame a guideline on election manifestos after consulting the recognised political parties and make it a part of the Model Code of Conduct.

However, the poll panel failed to exercise its authority in respect of the AIADMK which had announced freebies, Balaji told IANS.

Although for the first time the Election Commission has cancelled elections in two Assembly constituencies because of "influence of money", the freebies culture has become so ingrained in the state, that it's likely to continue.