Sunday, 6 April 2014

Get the poor to subsidise the poor

I am not sure what the Tamil Nadu government is. A bootlegger ? A bottomless pit ? A great implementer ? A humane  carer of the unfortunate ? A bunch of eunuchs in the court of a megalomaniac ? All of the above ? Read on.

I was tempted to take a one post detour from the economic manifesto for the country as a whole, to shine a spotlight on Tamil Nadu. This was prompted by a comment from myfloatingthoughts asking for an opinion on the freebies and other doles that bedevil this state. When I examined the financial situation of Tamil Nadu, it is a complex nuanced position. A mixture of the good, the bad and the awful. Judge for yourself.

                                                                                                      Rs Crores


State sales taxes                                                                                33,970
Profits and taxes from liquor sales                                                      23,400
State's share of central taxes                                                             14,520
Property Taxes                                                                                    8,338
Others                                                                                               21,549

Total Revenues                                         1,01,777


Interest                                                                                              10,196
Freebies  (the awful kind like mixers, grinders)                                      8,350  
Pensions                                                                                            13,680
Unproductive expenditure                                                             32,226

Education                                                                                          16,293
Agriculture                                                                                           6,346
Health                                                                                                 5,365
Power                                                                                                 4,368
Urban Development                                                                            4,148
Other Revenue productive expenditure                                              10,108
Other Capital productive expenditure                                                 28,362
Productive expenditure                                                                 79,032

Grants to local bodies and Panchayats                                          9,233

Total Expenditure                                     1,20,491

Note : Classifications of" "unproductive" and "productive" are my own    

One thing immediately stands out from the revenues - the Tamil Nadu government is essentially a liquor company. It has commandeered a monopoly of the liquor distribution in the state. Liquor consumption is booming in Tamil Nadu, aggressively driven by TASMAC - so much so that the per capita liquor consumption in the state is the highest in the country. If you have seen a TASMAC outlet anywhere in the state, you would know it is one of the dingiest and most depressing of all places. Only the poor frequent TASMAC. If ever there was a case of the state robbing the poor ..........

The thing that stands out on the expenditure side is that pensions are a bigger problem than freebies. The freebie nonsense is a relatively small amount and can be turned off, for many of the freebies like mixers and grinders (the largest one is laptops)  are one time affairs. The real problem is pensions, to the 7 lakh retired employees of the state. It is a sobering thought that 1% of the population of the state (and relatively well to do at that) corners 14% of the state revenues. Wonderful.

The better side of the story is that a considerable portion of the expenditure actually goes to productive uses. The state has always been a leader in education. Its health sector is also one of the better managed ones in the country. Its roads are good. It has faced a chronic shortage of power and has stepped up investment in this sector by a huge amount. Irrespective of which political party is ruling, productive expenditure has always been high. Yes, a significant portion of this expenditure is siphoned away by the political operators - for this is one of the most corrupt states in the country. Yet, a fair amount does actually get spent. So the situation is not that bad.

There are no elections to the state due for a couple of years. When the state elections come, the chief issues , economically speaking,  for the state are

  • Is it ethically right for the state to remain financially afloat purely by getting the poor to be fully drunk.
  • What to do about pensions
  • How can we get a greater proportion of well meaning productive expenditure to be actually spent instead of being siphoned away

I am willing to bet not one of these will be debated election time.              


Anonymous said...

Thanks for taking this up Ramesh Sir! As you have explained, the numbers show that the freebies are not a big proportion of the outflow yet, but what worries me most is the impact this culture has on the moral fabric of the populace. Coupled with the drunken state of affairs, the whole population seems to think that the state would be its lifelong caretaker and there is no need to earn a honest living :-(

Prakash Venkatesan said...

The options instead of running TASMAC would be prohibition or privatising the sector. It is well known that prohibition does not work. But it confounds me as to what the state loses by privatisation. The taxes will still accrue and the graft as well.

Is the pension legitimate or not? If it is not, how did it come about in the first place?

These issues are not debated because nothing worthwhile is going to come out of the debate unless the poor are educated and lifted out of poverty. Once that happens, in spite of all odds, no debate would be necessary.

Sriram Khé said...

It is the rich progressive history that has helped out Tamil Nadu, which is why despite the robbery by the DMK/ADMK governments the state's people are still doing well.

I don't mean any "Sangam"-literature kind of old history but the 20th century history. The Self-Respect movement that Periyar led immensely contributed at the ground level. It wasn't any empty rhetoric like Indira Gandhi's "garibi hatao" ... And from the other side, the progressive thinking of those in power--CR, Kamaraj, and Bhaktavatsalam.

The net result is that the state got to be pretty good position in the human development indicators ... A simple, but a profound, example: the total fertility rate in Tamil Nadu is even less than the fertility rate here in the US. It makes a huge difference when even the poor have fewer children to take care of ...

Thus, as hard as the likes of MGR, Karunanidhi, Jayalalithaa try to set back the state, well, there was enough momentum to get the people going in the right direction.

If these atrocious politicians who have screwed the state for more than three decades had been even a tad more responsible and just a little less corrupt, then the state would have had some awesome transformation. But, such is life ...

The Million Miler said...

While the Pre DMK/ADMK govts in TN did set the basics right as Shriram says, rubbishing 30 years of MK/MGR/JJ rule is not really quite right. Agreed none of these were paragons of virtute and devoted thier lives selflessly to the upliftment of the poor. However there were (despite all the corruption and scandals) several things that were put in place that has helped in the long run. IF one were to look at the 3 CMs and single out one thing that they did which has benefited the state in the long run - MK for having built the transport network to what it is today. In the 70s and 80s when most states had an unresponsive monolithic State Transport Corporations, MK created decentralisied units; in rural areas transport = trade = income.
MGR for all his quirks was a genius in expanding Kamaraj's Mid day meal scheme. While there were lot of middlemen who ate and continue to eat, it genuinely lifted up school enrolment rates especially in the poorer sections of M.R.T.K districts (Madurai, Ramnad, Tirunelveli, Kanyakumari). And her highness in her second (and possibly the third) stint did light up a fire under the backsides of the bureaucracy especially in the area of Self Help Groups and Microcredit. In Coimbatore (rural) which is home for me, I see this has significantly transformed lives of women (because all the men folk are in TASMAC shops and can't be relied to bring money into the house) Economic emancipation of the rural tamil woman is seen to be believed. I guess fundamental to all this is the fact tha the bureaucracy has been reasonably good through the years.

The Million Miler said...

Did I say 30years of MK/MGR/JJ, apologies, make it 50. The congress is a spent force in TN and nothing can ever revive it! And time flies!!

Ramesh said...

@myfloatingthoughts - Yes the freebie culture has afflicted everybody - we now consider the government basically as something to be looted.

@Prakash - Thanks for reading and commenting.Oh - I am not advocating prohibition at all. But I have some moral scruples in a government aggressively driving liquor consumption amongst the poor by opening an outlet virtually in every village. They are not privatising it as they are making a significant profit (markups of more than 20%) in addition to taxes.

Pensions are perfectly legal. Its just that its a horrible instance of robbing the child to pay the elderly. They give over generous pensions and don't fund it during the lifetime of service of the employee - so the children pay for the old.

No, we should talk about it, even though it may not have the slightest effect on the polls. If we all don't consider the issues and think, then we might as well vote Ileana or Asin to the government :):)

Ramesh said...

@sriram - Oh yes - the state has a lot going for it. Huge commitment to education, an overcoming of caste barriers, some good governments in the past (not bad even now). And, as you say, what more could have been achieved with better governance.

@Kiwi - You are absolutely right. The three recent CMs haven't been all that bad. Yes, they have been mind bogglingly corrupt, but under their administrations a lot of good has been done too, as you have pointed out. Even the current megalomaniac lady, is doing all the right things on the power sector.

Sriram Khé said...

You two are being extremely charitable when it comes to MK, MGR, JJ. Perhaps you have the bar way too low because you look around at characters like Lalloo, which makes you then conclude that these three " haven't been all that bad."

Even though the "Dravida" political party rule is now almost 50 years old, the early years were the only ones that were not all that bad. MK institutionalized corruption even early on (we folks from Neyveli remember the Veeranam pipeline pipes by the highway on the way to Madras!) but the magnitude then was way less compared to his tenure later. The initial MGR years were not all that bad, true. But, by then MK had already lowered the bar.
But, it was from MGR's time on that Tamil Nadu started slipping in economic growth rates and, especially, in the value-adding manufacturing sector.

Ramesh said...

@Sriram - Oh yes - this lot institutionalized corruption, presided over a huge degradation of values, resorted to outright thuggery etc etc. But they also governed well in certain areas - and in our rightful criticism of them, we can't ignore that.

Prakash Venkatesan said...


Saw a report in the hindu yesterday that the liquor manufacturers supplying tarmac were benamis rather than cronies.

Stands to logic that making liquor more accessible to people will drive consumption. Wonder if there is any study that reveals any freakanomics side to this aspect of accessibility.

On the subject of privatisation, it still seems to make more sense to give the distribution licences to other benamis.

Not funding the pensions during the service lifetime is indeed a crime on our children. I have heard that the Americans are guilty of this with respect to Social Security. I wonder how the rest of the developed world fares on this.

You are right, we should debate it even if it is inconsequential as far as the elections are concerned. I am sure this debate will be on amongst the women and daughters of the country who bear the brunt of this menace.

Ramesh said...

@Prakash - Thanks for commenting. Yes, there is many a shady practice in the TASMAC business - how can it not be when it is such a major money spinner for all sorts of people. Politicians have their hand heavily inside in this business. And you are right - its the women folk in TN who bear the brunt of the effect.

The pensions problem is much worse in the West. It is bad in the US and a country like France for example is plain broke on just this one area. My generation has much to answer for, for it is the first generation which has stolen from its children.

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