Business Today

Jayalalithaa gets a clear mandate but faces a daunting task

Tamil Nadu's finances are in complete disarray after the outgoing DMK government turned ultra populist and resorted to excessive welfare measures.

N Madhavan        Last Updated: May 23, 2011  | 11:23 IST

Next week AIADMK supremo J Jayalalithaa will be sworn in as the chief minister of Tamil Nadu for the third time. The people of Tamil Nadu have again voted out the incumbent government with utter disdain, giving the AIADMK-led alliance a thumping majority. It is expected to win 200 out of the 234 assembly seats. DMK, it appears, did not survive the anti-incumbency caused by allegations of large-scale corruption, high prices and massive power cuts. Its attempt to influence the outcome by allegedly offering cash to the voters failed as voters pocketed the money and gave the party the marching orders.

As results come in, it is clear that AIADMK will get a comfortable majority of its own, thus ruling out the possibility of a coalition government.

The corporate sector in the state is breathing easy. They feared that a coalition government will not be in a position to take head-on many a challenges that the state faces. Tamil Nadu's finances are in complete disarray after the outgoing DMK government turned ultra populist and resorted to excessive welfare measures. (Read: DMK's free lunches turn costly )

Fiscal deficit is large at over Rs 13,507 crore (financial year 2011-12), state's GDP growth has slowed and it is deep in debt. The state's borrowing is set to exceed Rs 1 lakh crore this fiscal. Per capita debt is estimated at around Rs 14,700.

Jayalalithaa knows the gravity of the situation. In fact, at her very first interaction after the results were announced on Friday she made it clear that setting the state's economy right would be her first priority. "DMK has ruined the Tamil Nadu's economy. My first priority would be to set it right,'' she said.

But her move to woo the voters with a range of 'gifts' - free wet grinders, free mixies, free laptop for students, a few grams of gold for marriages in family below poverty line (BPL), free rice for BPL families and many more - will complicate the problem for her. Tamil Nadu, already a highly taxed state - leaves little scope for raising taxes without making it uncompetitive. The challenge she faces is in finding ingenious ways to raise revenues, retiring the debts and balancing the books.

Her other challenge is the state's power situation. With a 3,000 MW deficit, the people and the industry have been subject to massive power cuts - more so in rural areas. The textile industry in Tamil Nadu has begun to expand outside the state for want of electricity.

Other industries have been forced to meet their power needs through the more costly captive route. She has to move quickly to make the state power-surplus or Tamil Nadu stands to lose its reputation as one of the most investment friendly states in the country.

Ask any farmer or industrialist, the most common refrain these days is the lack of labour. The combination of NREGA and the DMK's welfare measures have made the state's famed and disciplined workers lethargic. With most of their aspirations met, they are not interested in working through out the year resulting in a massive demand-supply gap, especially for semi-skilled and unskilled labour. Jayalalithaa needs find ways to bridge this gap.

Jayalalithaa's first stint as chief minister (1991-1996) was mired in charges of corruption. Her second stint was a lot better when it came to good governance and resulting record state GDP growth. The corporate sector is hoping that she will better this performance in her third innings as CM.


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