Jayalalithaa gives freebies to poor, taxes middle class

Middle- and upper-middle class people brace yourselves.

Tamil Nadu's Robin Hood, aka Chief Minister J Jayalalithaa, has ensured that all the essential ingredients of your life - from your morning coffee to your bus ride to work - is going to get a lot more expensive.

Depleted coffers, spiralling inflation and high fuel prices has forced Jayalalithaa to bite the bullet and increase prices of essential commodities in the state.

However below the poverty line families, who account for a major chunk of the vote bank, have nothing to worry about since they will not have to bear the brunt of high prices.

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Jayalalithaa says she has resorted to price hikes to improve the state's coffers, which, according to her has been left high and dry by the erstwhile DMK government.

That is partially true, as the DMK was responsible for Rs 1,45,000 crore (Rs 1,450 billion) worth of expenditure on things like televisions.

Still, what the CM is conveniently ignoring is that her populist policies have also depleted the state coffers, due to lavishing freebies on the poor, and cost the state Rs 9,381 crore (Rs 93.81 billion) because of spending on mixers (Rs 3,500 crore [Rs 35 billion]), grinders (Rs 3,500 crore [Rs 35 billion]), fans (Rs 1,000 crore [Rs 10 billion]), and sheep and cows (Rs 191 crore [Rs 1.91 billion]).

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Still, her reasons for the price rises are something else entirely.

"We have not received any assistance from the central government, which is providing aid only to the states that back the UPA. I have met the Prime Minister and Montek Singh Ahluwalia, deputy chairman of the Planning Commission, Government of India about the poor financial of Tamil Nadu but I have still received no help," she said.

The Chief Minister was referring to Centre's assistance to the tune of Rs 21,614 crore (Rs 216.14 billion) to West Bengal last week.

Jayalalithaa's explanation seems to have some takers. Cho Ramaswamy, political analyst and editor of Tughlak magazine commented that the financial condition in the state has been in trouble for some time as there was no proper administration at the time of Karunanidhi's Government.

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"It was totally ruined during that time and she (Jayalalithaa) has to administer some measures to improve the financial status. She had no other option except increasing prices. The corporates also has to pay more since the commercial taxes were increased even before this," says Ramaswamy.

One of the CM's biggest problems - indeed, it is now an albatross around her neck - is the terrible financial condition of the Tamil Nadu Electricity Board, which is neck-deep in debt.

Somehow, the TNEB has managed to rack up cumulative losses of Rs 40,651 crore (Rs 406.51 billion) as of March, 31, 2011, while its debt burden currently stands at Rs 42,175 crore (Rs 421.75 billion).

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Jayalalithaa said: "If some immediate step is not taken this debt burden will increase to Rs 53,000 crore (Rs 530 billion) by end of this current fiscal."

No wonder, then, that banks are wary of lending to the state electricity board, especially if it shows no ability to finance its debt.

TNEB has a current deficit of Rs 9,500 (Rs 95 billion), which will get tacked on to the Board's overall losses.

The Board, however, is trying to perform its own rescue act, by increasing tariffs by 20 per cent for the first time in seven years.

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However, this is subject to the regulator's approval. Sources say that TNEB's plans to hike tariff by Rs 1.50 per unit, would bring in around Rs 8,200 crore (Rs 82 billion), but this would not be enough to cover the deficit.

Domestic sector, power is supplied for anything between 70 paise and Rs 4.70 against generation cost of Rs 5.31, causing a loss of Rs 3,500 crore (Rs 35 billion), according to reports.

In the agriculture sector, which consumes 12,201 million units annually, the expenditure on power is Rs 6,500 crore, but the government subsidy is only Rs 250 crore (Rs 2.5 billion).

While the increase in cost of power will hit the middle and upper class families, farmers, weavers and single-hut consumers would continue to get power free of cost.

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It's not just TNEB that is in dire financial straits - the state's exchequer also resembles a black hole, with its debt standing at Rs 1,01,349 crore (Rs 1,013.49 billion).

The government has already given TNEB Rs 500 crore and plans to infuse another Rs 2,000 crore (Rs 20 billion) into it, but it cannot come to the rescue of the ailing state electricity board anymore, said the Chief Minister.

Power tariff increase is not Jayalalithaa's only tool to boost revenue. After more than 10 years, commuters will now have to pay 50 per cent more for bus tickets.

Commuters travelling on government buses will have to pay an additional 14 paise per kilometre for ordinary buses and 70 paise per kilometre for deluxe buses.

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This move will trim the losses of the state's public transport corporation, which is staring at losses of Rs 6,150 crore (Rs 61.5 billion).

Milk in the state is also set to become costlier. Procurement price of cow milk has been hiked from Rs 18 to Rs 20 per litre and that of buffalo milk to Rs 28 from the current Rs 26 per litre.

Price of toned Aavin milk to card holders has been increased from Rs 17.75 per litre to Rs 24 per litre.

Collectively, the proposed power tariff hike and the increase in prices of bus tickets and milk will add about Rs 5,000-Rs 5,500 crore (Rs 50-55 billion) to the states exchequer.

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Yet, despite Tamil Nadu's poor financial health, populism is still the name of the game. The sops and subsidies to the poor have remained untouched.

A state with bleeding finances will still give laptops, mixers and grinders free of cost to the poor.

In the interim budget for this fiscal the state government has already allocated Rs 8,900 crore (Rs 89 billion) for the freebie scheme.

In fact, a city advocate S Subramaniam Balaji filed a petition against various freebies, in which he said that the present package for intended free distribution would add another Rs 100,000 crore (Rs 1,000 billion) to be paid out of the exchequer of Tamil Nadu state in a period of five years.

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Can the state afford this?

The chief minister suggests that this is an irrelevant question.

"Freebies are provided to the general public with the sole aim of helping them stand on their own legs and become economically independent. Hence no one should trivialise it," she says.