Baskar R

Tamil Nadu’s Unhealthy Growth Pose Threats Tamil Nadu’s Unhealthy Growth Pose Threats Baskar R March 26, 2026 Public Finance, State Economies, Tamilnadu Economy Introduction The fiscal position of Tamil Nadu has been under stress for a decade and more starting from 2015-16, the revenue deficit to GSDP ratio has started exceeding one per cent and fiscal deficit exceeded 3 per cent in 2016-17.  The State economic management post pandemic, not adapting to the prevailing national fiscal management policies were contributing to these deterioration. Having been the traditional leader among major Indian States in per capita own tax revenue being the 6th in position reflects, this.  The State ranks 18th in terms of revenue receipts to GSDP ratio and 10th in own tax-to-GSDP ratio (Shanmugam KR, Tamil Nadu State Govt Finances, April 2025). With this background, attempts have been made here to study some of the key indicators of Tamil Nadu Interim Budget 2026-27.  We have interesting insights on how Tamil Nadu State is faring against its peer states.  Data for Tamil Nadu has been updated based on the interim budget estimates (IBE) and for rest of the States retained as per 2025-26 Budget Estimates (BE). Fiscal Deficit: GFD-GSDP ratio for Tamil Nadu just about stays within the Centre’s prescribed ceiling at 3.48%. This is worse than the Budget estimate by 48 bps.  Revenue Deficit: For 2025-26 (RE) Revenue deficit of Tamil Nadu is at 1.9% of GSDP, 2026-27 budgeted at 1.2% and committed expenditure as % of revenue expenditure is high at 40.9%, at an increasing trend over last three years. Both indicators, highlight Tamil Nadu is faring behind its major peer States used for benchmarking.  Revenue growth is important to fund its growth and the pressures from handling committed expenditure on salaries, pensions and healthcare in an ageing demographic context is a serious problem. Outstanding Liabilities and Interest Payments Outstanding liabilities by State are typically available only as part of the RBI Study and isn’t part of respective State Budgets. The report for 2025-26 helps compare States’ performance uniformly. The key components of outstanding liabilities are State Development Loans, loans from institutions, UDAY, NSSF, loans from Centre, PF, Reserve Fund, deposits and advances, etc. Tamil Nadu is the only State which has crossed Rs.10 lakh crores of outstanding liabilities and has been on increasing trend in recent years. As % of GSDP it is at 29.2% higher than its peer States. Further, RBI Study compares interest payment of States against their revenue receipts to assess how much of State’s own revenue is consumed by debt servicing before any discretionary spending and against revenue expenditure to see how much of it is spent on interest as against services (education, health and salaries) on recurring activities. Comparing interest as % of GSDP would mask underlying revenue capacity constraints.   Expenditure Pattern – Development Expenditure Key Development Expenditure (DEV) pattern and Social Sector Expenditure (SSE) across the major States reflect a mixed pattern.  Uttar Pradesh and Telangana does predominantly well on key indicators under this metric.  Whereas, Tamil Nadu is consistently below peers and needs to revisit the quality of its spending. While Tamil Nadu budgeted Rs 59,562 crore for capital outlay in 2026-27—a 16% increase from previous year. However, the absolute allocation remains constrained relative to fiscal deficit size.   Conclusion This study has reviewed the financial health of Government of Tamil Nadu based on the interim budget of 2026-27. Specifically, it has analysed the overall trends in fiscal deficit, revenue deficit, outstanding liabilities, interest burden, revenue expenditure and their compositions of development and social sector expenditure as % of GSDP. It also compares the capital expenditure pattern of Tamil Nadu with those of the other major State governments in India. A recent report on FISCAL HEALTH INDEX by Niti Aayog (2026) reveals that Tamil Nadu is ranked 13th as compared to Gujarat and Maharashtra ranked at 4th and 5th respectively. As is evident from the data above, Tamil Nadu’s financial performance faces multiple challenges, including rising debt, elevated revenue and fiscal deficit, higher interest burden, committed expenditure increasing to an all-time high of 41% of overall revenue expenditure, etc. This directly leads to lower development and social sector spending. While the State’s economy has grown at a commendable pace on year on year basis, the overall fiscal position has weakened with an increasing reliance on debt to finance revenue expenditures. The State must prioritise fiscal discipline through improved revenue generation, enhanced non tax revenues, and stringent control over debt and interest payments. The Author is a Finance Professional and has keen interest in current affairs and Indian culture. Views expressed by the author are personal and need not reflect or represent the views of the AgaPuram Policy Research Centre.