Tamil Nadu can lead India on revenue reform
A market loan or bond provides cash today while creating a financial liability. It is financing, but not revenue
Tamil Nadu's formation of a high-level Revenue Augmentation Committee could prove to be a game-changer for the state, potentially leading the way for other Indian states to modernise their revenue definition and management. The committee, chaired by Montek Singh Ahluwalia, has been tasked with strengthening both own-tax and non-tax revenues, improving their buoyancy, eliminating leakages, and increasing fiscal self-reliance.
Tamil Nadu, known for its strong economic growth and social development, once ranked among India's better-managed states with own-tax revenue at 9.3% of Gross State Domestic Product (GSDP) in 2002-03. However, non-tax revenue has remained a challenge, contributing only 7% to the total revenue. The 15th Finance Commission highlighted the decline of own-tax revenue from nearly 9% of GSDP in 2006-07 to 6.4% in 2016-17.
To address this structural issue, the committee must first clarify what counts as government revenue, a distinction that has become blurred in Indian public finance. The International Monetary Fund's Government Finance Statistics Manual (GFSM 2014) provides a clear framework, classifying government revenue into taxes, social contributions, grants and other revenue, and fees and charges.
Borrowing, while providing cash, is not revenue and does not contribute to the state's capacity to finance public services. Tamil Nadu should adopt international standards for defining and presenting government revenue, becoming the first Indian state to do so. This would not only address a longstanding reform agenda but also set a benchmark for other states and the Union government.
The committee should focus on better tax administration, linking GST information with administrative databases to reduce evasion, and improving non-tax revenue through periodic reviews of user charges, royalties, and returns from public assets. By re-evaluating their approach to revenue, Tamil Nadu can lead India in revenue reform and demonstrate a sustainable path for other states to follow.
Written by urgent.news from The Hindu's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
