When the AIADMK formed its government in 2001, the states finances were in a mess. The exchequer was empty, and the state was heading into a massive debt trap. Though Tamil Nadu was one of the highest taxed states, its revenues were not enough to meet its expenditure. The state in 2000-01, thanks to the implementation of the 5h Pay Commission recommendation, spent 94% of its tax revenues (Rs 12,282 crore) towards payment of salaries and pensions to the government employees. Its pension liability at Rs 2,927 crore was then the highest in the country. Bloated subsidy bill drained whatever little was left of the revenues.
In short, the state desperately needed a catharsis and thats what the government attempted. It froze almost all government recruitments, banned employment on compassionate grounds, put on hold some perks of the employees and set up a committee to look into redeployment of staff across various departments. The reaction was as expected; the employees resorted to a strike, but the state government came down heavily on them. The courts held the strike illegal and the government employees, badly bruised but left with little option, returned to work.
As a result of many unpopular decisions of the government to set the state financesand of course, due to a coalition arithmetic stacked heavily against itthe AIADMK was drubbed badly in the 2004 Lok Sabha elections. But some interpreted AIADMKs bad show as a result of its handling of the government employees strike and their resultant anger (after all, it is they who man the polling booths!).
This faulty realisation and the fast approaching state Assembly elections in 2006 saw the AIADMK government make an about-turn with regard administrative reforms. By then the state finances were more or less back in shape thanks. Penal actions initiated on the striking employees were withdrawn. They were even paid for the period they struck work. As the elections approached the sops increased. Perks that were withdrawn were reinstated. Ban on recruitment was lifted and more recently, appointments under compassionate grounds were re-introduced. In short the clock has been completely set backward with regard to administrative reforms in Tamil Nadu.
The effect of these measures is already evident in the government budget announced last week. The salary and pension commitment is expected to increase to Rs 17,774.45 crore in 2006-07 compared to Rs 14,232.24 crore in 2005-06. The present DMK government is banking on revenue buoyancy to tide over higher salary bill and its impact on various fiscal parameters. It expects Tamil Nadu to be revenue surplus in 2008-09. But it does not seem to have a plan ready if and when the booming economy begins to falter, tax revenues decline post-Vat and the 6th Pay Commission recommendations come to haunt it. The political parties in the state have proved yet again that given a choice between fiscal responsibility and populism, it is the latter they would plump for.