Tamilnadu Economy

Tamil Nadu’s bumpy road to $1-trillion economy

Leave a Comment / Public Policy, State Economies, Tamilnadu Economy /

Tamil Nadu’s bumpy road to $1-trillion economy Tamil Nadu’s bumpy road to $1-trillion economy by Chandrasekaran Balakrishnan October 31, 2025 Public Policy, State Economies, Tamilnadu Economy Though Centre-state devolution gets public attention, little light is shed on intra-state devolution to rural and urban local bodies. If Tamil Nadu is to reach its goal of being a $1-trillion economy soon, the new State Finance Commission will have to address such issues The Tamil Nadu government accepted 259 out of 280 recommendations made by the sixth State Finance Commission without changing the ratio of devolution amount between rural and urban local bodies (Photo | Express) Updated on: 30 Oct 2025, 2:17 am 4 min read Tamil Nadu aspires to become a $1-trillion economy by 2030. However, it seems feasible only after 2031-32 given the amount of work needed on multiple fronts, ranging from effective decentralised governance and sectoral growth challenges to addressing intra-state regional disparities. While the state’s strength of being a global hub for manufacturing and its significant contribution to the services sector make the headlines, certain challenges remain under-discussed. Almost two years have passed since the release of a plan titled ‘Tamil Nadu Vision $1 trillion’, which aimed to “ensure that all districts and regions of the state emerge as growth centres, while driving prosperity for all sections of the society”. Yet, there has been a little visible change in implementing its key recommendations. In a dynamic federal country like India, state governments often tussle with the Centre seeking more regional autonomy. Ironically, some of the same states fare poorly in decentralisation of administrative power and financial autonomy within, despite a mandate for it under the 73rd and 74th constitutional amendments in 1992. The challenges faced by Tamil Nadu, especially its urban and rural local bodies, including its limited capacity to meet the aspirations of the people for better civic infrastructure facilities and services could be mostly attributed to inadequate institutional mechanisms. One of the biggest institutional and structural lacunae is that despite about 55 percent of people living in urban areas, the devolution of funds continues to be higher for rural local bodies (51 percent) as compared to urban local bodies (49 percent). Against this background, the state government has constituted its 7th State Finance Commission (SFC) under the chairmanship of K Allaudin, a retired IAS officer, to “review the financial position of various urban and rural local bodies and make appropriate recommendations on the distribution of funds to be provided by the state government” for a five-year period from April 1, 2027. This surpasses the target to become a $1-trillion economy by two years. The three-member commission has been asked to submit its report by August 31, 2026. Unlike states like Assam and Kerala, Tamil Nadu has not involved any subject experts on its SFC this time too, as has been the case since its inception in 1997. While the first, sixth and the recently-constituted seventh SFCs have been headed by retired IAS officers, others were headed by serving IAS officers. The key recommendations of the SFCs are mandated to be implemented within a year after the submission of action taken reports. However, there are no such publicly available reports on actual implementation until the next SFC is constituted. The state has accepted many of the past SFC proposals, ranging 80-96 percent of the recommendations. However, for the third SFC, the state government accepted only 240 out of the 308—or about 78 percent—of the recommendations. This gives a clue about how bound the state feels about acting on the proposals. The actions are important for the SFCs’ functions, which include a wider consultative process, examination of various data sets of rural and urban local bodies, and time taken to submit the report So it is instructive to look at the time taken by each SFC to make their final submissions. The state’s first SFC took 19 months, second 15 months, third 22 months, fourth 22 months, fifth 24 months, and the sixth took 24 months to submit the final report to the government. Most often, the reasons for delay are not mentioned. It is also important to note that public discourse has been largely silent on the SFCs’ functions, operations, effectiveness, quality, and implementation. With all this in the backdrop, here are five critical challenges before Tamil Nadu’s seventh SFC Decentralisation of real administrative and financial autonomy from the state capital to district administrations, city corporations, and town and village panchayats is still a distant reality. Though the administrative coverage of urban local bodies has expanded to 25 cities from 16, the availability and quality of basic civic infrastructure and services remain inadequate and substandard. 1.Decentralisation of real administrative and financial autonomy from the state capital to district administrations, city corporations, and town and village panchayats is still a distant reality. 2.Though the administrative coverage of urban local bodies has expanded to 25 cities from 16, the availability and quality of basic civic infrastructure and services remain inadequate and substandard. 3. Increased regional disparities within districts have become a major challenge. The average per capita incomes in the western and northern parts of the state are significantly higher than those in the eastern and southern parts. 4.Another major hurdle is the lack of coordination among key departments, insufficient public consultation, and ineffective programme design in crucial sectors such as sanitation, water supply, electricity, roads, transport, policing, waste management, and wastewater disposal. These gaps create avoidable hardships, especially for the young. 5. Although there is significant scope to enhance revenue streams for local bodies in urban or rural administrations, state-level centralisation continues to constrain their autonomy in decision-making and their ability to address local issues and challenges. While neighbouring states Karnataka and Kerala have made significant progress in addressing challenges related to devolution of administrative power, these aspects have often been given piecemeal attention by Tamil Nadu’s SFCs and no commission has taken a holistic view of the structural challenges faced by the local bodies. The prayer is that this time

Tamil Nadu’s bumpy road to $1-trillion economy Read More »

The Euphoria of Tamil Nadu GSDP Growth Rate!!

Leave a Comment / Indian Economy, Public Policy, Tamilnadu Economy /

The Euphoria of Tamil Nadu GSDP Growth Rate!! The Euphoria of Tamil Nadu GSDP Growth Rate!! Chandrasekaran Balakrishnan September 4, 2025 Indian Economy, Public Policy, Tamilnadu Economy The regional economies in India are still largely evolving and have their own pace of sectoral growth trends. The evolution of the state economy is dependent on the pattern of institutional governance, services, and facilities deliveries, which plays a vital role for achieving the national dream of Viksit Bharath@2047. The degree of economic freedom between and within States varies across India, indicating disparity. The Gross State Domestic Product (GSDP) is an aggregate of all sectors, broadly consisting of agriculture and allied activities considered as the primary sector; manufacturing, including construction, etc., as the secondary sector; and financial services, transports, hotels, etc., as the services sector. Each sub sector has its own significance for achieving a balanced regional growth as well as intra-regional growth within a State and contributing to the national growth rate. When politicians or policymakers become passionate about achieving a year’s GSDP growth rate as the biggest achievement, leaving the growth trends and other inferences, it becomes detrimental for economic development, which accounts for a sustained and overall improvement in welfare. Further, at the regional level, some of the sub-sectors’ growth trends are undermined while focusing only on the overall GSDP growth rates, which leads to not only misinterpretations but wrong conclusions for short term political gains. It is pertinent to note that Ludwig Von Mises, a prominent figure in the Austrian School of Economic Thought, saw statistics as descriptive rather than explanatory, and he cautioned against interpreting statistical regularities for political milage. He argued that statistics deal with past events and historical facts, lacking the ability to predict future outcomes or reveal causal relationships in the realm of human action. In April, 2025 when the Union Ministry of Statistics and Programme Implementation (MoSPI) had released the state-wise GSDP data, there was a huge celebration among a section with the claim that the one-year growth rate of Tamil Nadu state (9.69% for 2024-25) was an extraordinary achievement. The truth is that one year growth rate data cannot give a true picture for a trend analysis- short run, medium run, and long run. The macroeconomic growth rate discourse in the State missed an important point that Tamil Nadu’s agriculture and allied sector witnessed in negative growth of -0.15% in 2024-25 (provisional). As per the provisional data, the average GSDP Growth rate of Tamil Nadu in the last four years (2021-22 to 2024-25) was 8.48%, which was way below the growth rates of States like Odisha (9.80%) and Maharashtra (8.99), and Karnataka (8.73%). Moreover, more than a dozen States’ provisional GSDP data were not even released for the year 2024-25 in April, 2025. Similarly, the MoSPI released the revised State-wise GSDP data on 1st August, 2025, for the financial year 2024-25. One-year GDP data is important, but it is the trend which is more important. There is another dubious claim of a 14-year break of the Tamil Nadu State GSDP! Let’s look at what the actual average trend data reveals. In the current regime of DMK rule in Tamil Nadu, the average growth rate of State GSDP for last four years (2021-22 to 2024-25) is 8.63% which is lower than states like Assam (9.05%), Bihar (9.59%), Karnataka (8.73%), Maharashtra (8.99%), Meghalaya (9.54%), and Uttara Pradesh (9.15%). It is also interesting to look at the data of the first four years’ average state GSDP growth rate of the previous DMK regime. Tamil Nadu’s economy performed far better than comparatively. The average state GDP growth rate for the first four years was 9.41% (2006-7 to 2009-10). Further, even then, States like Bihar (10.41%), Chhattisgarh (9.76%), Haryana (9.89%), etc. outperformed Tamil Nadu. It is pertinent to note that Tamil Nadu’s share of GDP at all India level over the last 7 decades increased only by 0.2% from 8.7 % in 1960-61 to 8.9% 2023-24. Maharashtra’s economic performance has remained relatively steady throughout the period (from 12.5% to 13.3%). According to recent NCAER Analysis (2025), the state of public finance of Tamil Nadu is worrisome. Debt Sustainability Analysis, a method used to assess whether a state (or country) can meet its debt obligations without resorting to excessive borrowing or facing financial instability, expects an upward and increasing trajectory, during the period from 2022-23 to 2026-27. In recent years, what Tamil Nadu missed is the following key drivers of economic growth and creation of employments opportunities, which is at par with States of Karnataka and Maharashtra. Attracting FDI: Analysis of major states’ attractions of Foreign Direct Investments (FDI) Trends of the last decade (2015-16 to 2024–25) shows Gujarat’s share increased from 6% to 11%, while Tamil Nadu’s share declined from 11% to 7%. Tamil Nadu is still lacking what Karnataka and Maharashtra have nurtured for decades, including improved infrastructure policy stability and mature industrial ecosystems across the departments and across the region/districts within the State. The latest FDI data analysis for 2024-25 reveals that among the top ten states, Maharashtra accounts for 39%, followed by Karnataka (13%) and Delhi (12%). Tamil Nadu ranks 5th with FDI inflow of Rs. 31,103 crores. Under-utilised Coastal economy: The strategic geo-economic coastal advantage of Tamil Nadu has not yet been harnessed. Mobility: In the area of mobility as a key driver of the economy, Tamil Nadu has done some concrete efforts in terms of policy for the attraction of new investments for the production of Electric Vehicles, but it has been lacking consistently over the years in terms of adoption of EVs in public transportations across the state. Sub-par urban civic amenities: Urban Population in Tamil Nadu has consistently exceeded the national estimates, and the gap between the two has widened, particularly over the past three decades. Now, Tamil Nadu has 54% of its urban population, but basic urban civic facilities are very poor across the state, without decentralisation Diversification: Tamil Nadu predominantly concentrates on some services sectors, agriculture, forestry, and

The Euphoria of Tamil Nadu GSDP Growth Rate!! Read More »

Tamil Nadu Lacks Institutional Mechanisms to Promote Holistic Tourism

Leave a Comment / Cultural Economics, Public Policy, Tamilnadu Economy /

Tamil Nadu Lacks Institutional Mechanisms to Promote Holistic Tourism B Chandrasekaran Tamil Nadu Lacks Institutional Mechanisms to Promote Holistic Tourism B Chandrasekaran Chandrasekaran Balakrishnan June 5, 2025 Cultural Economics, Public Policy, Tamilnadu Economy Tourism plays a crucial role in the economy, contributing 6.23% to the national GDP and providing 8.78% of total employment. For Tamil Nadu, 8% of its GDP comes from the tourism sector and the State aims to increase it to 12% by 2030. In 2019, Tamil Nadu had 49.5 crore domestic tourist arrivals and 0.69 crore foreign tourist arrivals. Between 2013 and 2019, Tamil Nadu was the most visited State by domestic tourists garnering 22.1% of total domestic tourists in India. However, this trend declined significantly in 2020 and 2021 due to the pandemic and continues with the trend. The overall experiences experience of any tourist to the State is a disappointing given the kind of state’s industrialisation and urbanisation achievements. Despite several new steps taken in recent times to promote the tourism sector by the government, the state’s tourism infrastructure continues to be substandard with a lack of integrated mobility; lack of basic civic facilities like water, hygiene and sanitation; lack of adequate safety and security facilities etc. This reflects lapses in holistically developing the sector. In 2003, the Union Ministry of Tourism and Culture released a study titled “20 Years Perspective Tourism Plan for the State of Tamil Nadu” to promote holistic tourism in Tamil Nadu. The study stated that “Tamil Nadu is a magical blend of timeless traditions and colourful festivals – a seat of cultural heritage.” It also stated, “Tamil Nadu, with its picturesque hills, beaches, waterfalls, wildlife sanctuaries, temples, ancient monuments, places of worship for all faiths and centres of art and culture has a lot to offer to the domestic and international tourists”. The following findings were highlighted in the study, which are still relevant as far as the challenges faced by the tourism sector of the State are concerned: Inadequate infrastructure like roads, water, electricity, and transport at some tourist destinations, and increasing pollution arising out of tourism. The bottlenecks at the state level have been identified as lack of accommodation (51%), water supply and sanitation (46%), poor connectivity (43%), power supply (37%), lack of life garbage disposal (30%), lack of travel booking (16%), and insecurity (8.3%). Hence, the average spending by a foreign and domestic tourist is less in Tamil Nadu as compared to some other northern states. There is an absence of heritage hotels, paying guest accommodations, and dormitories at pilgrim destinations. It is estimated that 1.2 international tourist visits provide employment to one person, whereas 17 domestic tourists generate employment for one person. Hence, the employment multiplier is 1.358”. It is estimated that Rs.10.00 lakh invested in tourism created 47.5 jobs against 44.7 in agriculture and 12.6 in manufacturing… In respect of the hotel industry, an investment of Rs.10.00 lakh will give direct employment for 12 persons and five rooms in a five-star hotel at an average gives direct employment to eight persons.”  The study recommended the following measures to develop holistic tourism in Tamil Nadu: Tamil Nadu has a long sea coast (ECR) which can be used to connect places on the East coast and provide added attraction for tourists. Possibilities of inland cruise service on the river/ canals are also suggested to be explored. Tourism plays an important role in the socio-economic development of any country. It is one of the major sources earning foreign exchange. Tourism promotion also generates employment in urban as well as rural areas that may arrest the large scale migration of rural mass to urban centres and in turn help avoid formation of more slums. Tourism can yield positive results provided it satisfies the requirements of sustainable eco-development and is managed scientifically and gainfully. Local people should be made to participate in planning and development of tourism so that they can bring new ideas, support and influence the decisions, and in turn be a part of it. Develop training content and capability to strengthen passenger services at transport interchanges (bus, railway, ferry, ship and air plane terminals); Promote the application of universal design principles to improve the accessibility of tourism sites, especially cultural, heritage and pilgrimage sites. To develop in tandem with allied departments like HR and CE, Transport, Rural Development, Municipal Administration, Water Supply, Department of Art and Culture, NGOs involved in tourism and cultural activities;” Tamil Nadu has just 2 cruises at present, despite having 13% of India’s total coastline. Tourism is highly labour-intensive, but the employment generation has decline in tourism sector in the state recently. Some reasons for the failure are: The statutory powers and other delivery systems to support tourism development (infrastructure development), are vested with various government departments/ agencies which operate in silos with hardly any coordination. Tamil Nadu Tourism Development Corporation (TTDC), incorporated in 1971, has not developed adequate institutional facilities and services for the tourism sector to cater to the demands of inbound domestic and foreign tourists. It has 51 hotels with 852 rooms, which is not adequate. The Institute of Hotel Management, Catering Technology & Applied Nutrition in Chennai and The State Institute of Hotel Management & Catering Technology in Tiruchirappalli are still not adequately equipped with state-of-the-art infrastructure facilities for training skilled manpower for the tourism sector of the state, resulting in failure to produce enough semi-skilled or skilled tourist guides with proficiency in different regions of India and international languages. As the State aims to achieve a one trillion-dollar economy in 2030, tourism presents a significant opportunity for growth. The State’s Tourism Policy 2023 aims to attract new investments of Rs. 20,000 crores and achieve employment generation of 25 lakhs by 2028. It also aims to achieve a tourism sector contribution of 12% of the GSDP share in the state economy. It envisions to develop all the tourism destinations through Tamil Nadu Integrated Tourism Promotion Project (TNITPP). It also announced Focus Tourism Destinations (FTDs) and Focus Tourism Corridors

Tamil Nadu Lacks Institutional Mechanisms to Promote Holistic Tourism Read More »

Tamil Nadu Budget 2025-26 Aims High But Fall Shorts

Leave a Comment / Public Policy, State Economies, Tamilnadu Economy /

Tamil Nadu Budget 2025-26 Aims High But Fall Shorts Tamil Nadu Budget 2025-26 Aims High But Fall Shorts Chandrasekaran Balakrishnan April 8, 2025 Public Policy, State Economies, Tamilnadu Economy Few State Government Budgets are closely watched at the national and regional level for their key announcements and pragmatic policies on emerging sectors. Tamil Nadu state budget is one such. During the last four years, two finance ministers have presented the state budgets. This year’s state budget is the last full budget as the state assembly elections are due by early next year. We need to appreciate the state government for bringing out the first Economic Survey Report of 2024-25. Tamil Nadu is one of the major industrialised states in the country and has set a target of becoming a one trillion-dollar economy. By not addressing issues related to faster urbanisation, slow paced structural and institutional reforms, lack of decentralisation of governance, rationalisation of overall state’s debts and debts of energy department, the State Budget for 2025-26 may be termed as a missed opportunity. Further, there are several low-hanging fruits to which the state budget did not pay enough attention. Moreover, the state’s window of demographic dividend is already over and faces a shortage of workforce across sectors, which is a major cause of concern. Therefore, the aims to achieve a one trillion-dollar economy dream by 2030 may not be feasible. Indian economy is on the verge of pushing its growth trajectory upwards given the global challenges. Tamil Nadu economy has a major role to play at national level contributions, hence the state budgets should aim and leverage for strengthening the institutional delivery system and decentralised approach of governance. The Budget for the current financial year focuses on social welfare measures which were highlighted most predominately for building popular narratives on distributive political economy. Nevertheless, few pragmatic policies were announced in the Tamil Nadu budget 2025-26 which includes new policies in frontier sectors like Tamil Nadu Semiconductor Mission-2030, Tamil Nadu Maritime Transport Manufacturing Policy 2025, A policy on Animation, Visual Effects, Gaming, Comics and Extended Reality (AVGC-XR), and Integrated Renewable Energy Policy. These are welcome steps. On healthcare, there are measures proposed to prevent and completely eradicate cervical cancer in Tamil Nadu. The Government has planned to provide HPV vaccination to all girls aged 14 years progressively. Further, the state has also proposed to set up “Chennai Science Centre” with the allocation of Rs.100 crore and 2 Basic Sciences and Mathematics Research Centres in Chennai and Coimbatore, in collaboration with renowned research institutes like the Indian Institute of Science (IISc) and Tata Institute of Fundamental Research (TIFR) respectively. Further, the State Budget for 2025-26 also announced a few welcome measures like raising of Municipal Bonds to the extent of Rs.200 crore for the Greater Chennai Corporation, Rs.120 crore for the Coimbatore Corporation, Rs.100 crore for the Trichy Corporation, and Rs.100 crore for the Tiruppur Corporation for increased capital expenditures to bridge gaps in civic facilities. However, the state has been facing multiple challenges on fiscal health indicators, which is a serious concern. As a result, the state faces a number of sectoral challenges, as highlighted by the Economic Survey. Rapid urbanization drives demand for infrastructure services such as transportation, housing, sanitation, and utilities- energy sector, use of technology in service deliveries, etc. However, the budget has given little attention to contemporary issues of lack of public infrastructure for industrial development and urban mobility aspects. Tamil Nadu is the second most urbanized state (54.13% in 2024) after Kerala. The state budget allocated funds for the urban sector are only Rs.34,396 crore under the Municipal Administration and Water Supply Department (Rs.26,678 crore) and Housing and Urban Development Department (Rs.7,718 crore). While, in 2023-24, 54.63% of Tamil Nadu’s urban workforce was employed in the service sector, close to the national average of 58.07%. The state government trained about 41.38 lakh students in the last 4 years, but only 2% of them are employable as per their assessment. Tamil Nadu is ranked 2nd nationally in 2023-24 with 35.56 lakh Udyam-registered Micro, Small, and Medium Enterprises (MSMEs). Of these 10.69 lakh (30%) were in manufacturing MSMEs, while 24.87 lakh (70%) were services-oriented MSMEs. These MSMEs provide employment to 2.56 crore workers in the state. While the budget allocations for industrial development are very meager. A total of Rs.3,915 crore allocated to the Industries, Investment Promotion, and Commerce Department, and a total of Rs.1,918 crore has been allocated to the Micro, Small, and Medium Enterprises Department. Thus, a total of Rs.5833 crore for industrial development. Another important sector is mobility, which is a growth driver for the state. The state has a population of 8.3 crore, but the total number of public transport buses is only 20,260 in 2023-24. Daily passengers travelling in public transport was 1.76 crore in 2023-24 increasing from 1.31 crore in 2019-20. As per the state economic survey, the state government has planned to introduce 8,682 new buses and has placed orders for 8,182 buses with financial support from KfW, the World Bank, SADP, and the state. MTC, a public-sector organisation, will procure 625 more e-buses as a component of the World Bank. However, the State Budget announced that about 1,125 electric buses will be deployed for public use starting this year: 950 electric buses in Chennai, 75 electric buses in Coimbatore, and 100 electric buses in Madurai, A total of Rs.12,964 crore has been allocated to the Transport Department. Also, Rs.20,722 crore has been allocated for Highways and the Minor Ports Department. The number of startups in Tamil Nadu has increased fivefold over the past four years, surpassing the 10,000 marks. But their presence is restricted to a few districts like Chennai, Kanchipuram, Thiruvalluvar, and Coimbatore. The start-ups are not diverse in sectoral focus and also not as dispersed across the districts in the south, east, and central parts of the state. In terms of sectoral fund allocations, only Rs.131 crore has been earmarked for the Information Technology and Digital Services

Tamil Nadu Budget 2025-26 Aims High But Fall Shorts Read More »

Highlights of Tamil Nadu’s First Economic Survey – 2024-25

Leave a Comment / Public Policy, State Economies, Tamilnadu Economy /

Highlights of Tamil Nadu’s First Economic Survey – 2024-25 Highlights of Tamil Nadu’s First Economic Survey – 2024-25 Chandrasekaran Balakrishnan April 1, 2025 Public Policy, State Economies, Tamilnadu Economy The economy consists of several components, including both institutional and individual people. Studying the progress of those components individually and collectively helps the governments, economy, and society to make future policies. The study of sectoral and sub-sectoral progress is an important exercise for the government to plan for its resource allocation and the economy to identify the growth potentials to be harnessed by the people and the private sector. After the Independence, the Union Government introduced the Annual Economic Survey Report along with Budget announcements in the year 1950-51. Given the importance of the economic survey analysis and perspectives on global and domestic policies on sectoral areas, the then Union Government separated the Union Budget and Economic Survey Report in 1964, which is being followed. Since the major economic reforms of 1991, the States embarked on building their growth and development path by bringing out a detailed analysis of sectoral, regional, intra-state district-wise, and block-wise progress of development. Like the Union Economic Survey, many State Governments have also started publishing their own economic survey to present a review of the major developments of the economy and make policy suggestions for the future.  For many years, all the Southern States have been publishing their annual economic surveys while presenting the budgets. The State of Tamil Nadu, the sole exception for years, has joined the bandwagon by publishing its “First State Economic Survey 2024-25” on 13th March, 2025, a day before the Budget Announcement for the financial year 2025-26 on 14th March, 2025. The survey was prepared by the Tamil Nadu State Planning Commission, led by a team of experts. The Government of Tamil Nadu used to bring out the “Economic Appraisal” report published by the Department of Evaluation and Applied Research (DEAR), with time lags. These reports were a kind of review of progress with little attention for public policy perspectives. This analysis focuses on key highlights of the Tamil Nadu’s First Economic Survey 2024-25 in terms of its presentation, and analysis of key issues. The state has set an ambitious goal of achieving a $1 trillion economy by 2030. As a highly industrialized and urbanized economy with strong linkages of global value chains on key sectors, Tamil Nadu’s economy has demonstrated remarkable economic resilience, consistently achieving growth rates of 8% or more since 2021-22. The state is estimated to grow above 8% in 2024-25. Further, the State achieved an average growth rate of 6.37% as compared to the national average of 6.1% during the period from 2012-13 to 2023-24. In the last two years from 2022-23 to 2023-24, this growth trajectory accelerated and the state achieved an average growth rate of 8.18%. The state did not estimate the likely growth rate for the financial year 2025-26 stating the economic situation is “unstable”. In terms of Per Capita Income at current prices, Tamil Nadu has Rs.2.78 lakhs which is 1.6 times more than the national average of Rs.1.69 lakhs in 2022-23 and is 4th largest state in per capita income ranks. While, in real terms, Tamil Nadu ranked 7th among major states in 2022-23, with a per capita income of Rs.1.66 lakh. However, there are huge variations among the districts within the state of Tamil Nadu. The district-wise per capita income highlights major variations among districts in Tamil Nadu. Chengalpattu district has the highest per capita income at Rs 6.48 lakh in 2022-23, followed by Kancheepuram (Rs.6.47 lakh) and Chennai (Rs 5.19 lakh). Notably, in 8 out of the state’s 38 districts, the per capita income exceeds the state average of Rs.2.78 lakh. These top-performing districts surpass the per capita income levels of several major Indian states, including Telangana, Haryana, and Karnataka. At the same time, the districts of Villupuram and Tiruvarur has per capita income of Rs.1.48 lakh each which is lowest in the state. Also, 7 districts (Ramanathapuram, Thiruvarur, Myiladuthurai, Ariyalur, Perambalur, Kallakurichi and Villupuram) have per capita incomes below the national average. Rapid urbanization drives demand for infrastructure services such as transportation, housing, sanitation, and utilities but in each of these areas, Tamil Nadu lags and is unable to provide good quality of facilities and services. Let’s look at the sectoral growth of Tamil Nadu’s Economy as emphasized in the Economic Survey: Tamil Nadu’s agriculture heavily depends on monsoons. The sector contributes Rs.1.5 lakh crore (6% of GSVA) and ranks as the 5th largest sector. It employs 41.1% of the rural workforce. In 2021-22, the state had 92.3 lakh farmers cultivating 64.6 lakh hectares of land. Notably, 93.5% of these farmers (86.3 lakh) are small and marginal, collectively farming 62.7% of the total cultivated area, with an average landholding size of only 0.7 hectares. Tamil Nadu’s 62% of the total cropped area includes major food grains, like paddy, maize, jowar, bajra, ragi, and millets, while non-food crops such as oilseeds, sugarcane, and cotton account for the remaining 38%. Paddy continues to dominate the cropping pattern, with its share in the total cropped area increasing from 32.1% in 2019-20 to 34.4% in 2023-24. The state’s consumption of fertilizers increased by 1.03 lakh MT to 10.68 lakh MT in 2023-24 from 9.65 lakh MT in 2019-20. Power consumption in agriculture also increased by 4146 million units to 17,957 million units and from 13,811 million units during the same period. The state government has allocated Rs.7,216 crore for the subsidy on three phases of free power in 2024-25 which needs to be rationalized by undertaking institutional reforms to eliminate power thefts and losses. The rise in the productivity of key crops in Tamil Nadu has been largely driven by the extensive use of chemical fertilizers and groundwater. The state has a total of 268 cold storage units with a combined capacity of 19,856 metric tonnes which is still inadequate given the expansions. The state’s organic farming has nearly doubled, rising from

Highlights of Tamil Nadu’s First Economic Survey – 2024-25 Read More »

Fiscal Prudence of Southern States

Leave a Comment / Economic Reforms, Indian Economy, Tamilnadu Economy /

Fiscal Prudence of Southern States Fiscal Prudence of Southern States Madhusudhanan S February 19, 2025 Economic Reforms, Indian Economy, Tamilnadu Economy Among the Southern States, Karnataka leads and Tamil Nadu lags in fiscal prudence. Telangana shows strong improvement, while Andhra Pradesh remains almost stagnant. Kerala has improved its fiscal position, but still not healthy. Introduction The NITI Aayog published its report on fiscal status titled “Fiscal Health Index (FHI) 2025,” which was released on January 25, 2025. This report assesses the following five essential sub-indices that are combined to create the Fiscal Health Index: 1. Quality of Expenditure, 2. Revenue Mobilisation, 3. Fiscal Prudence, 4. Debt Index, and 5. Debt Sustainability The fiscal health of 18 major states receives a thorough assessment in the report, which provides insights into the unique challenges and potential improvements in each state. In this article, we will focus exclusively on the fiscal prudence of 5 Southern States. 1. Andhra Pradesh The report states that Andhra Pradesh has always been in fiscal and revenue deficit for the past five years. The Fiscal Deficit to GSDP ratio in 2022–2023 was 4%, falling within the target of 4.5%. The State allocates only about 10% of the total developmental expenditure to capital expenditure. The State amends the Fiscal Responsibility and Budget Management Act (FRBM), from time to time and it is required to achieve specified fiscal targets within the specified periods.  The report suggests that Andhra Pradesh “may focus on enhancing capital expenditure efficiency, optimize committed spending, diversifying revenue sources for greater resilience, and may enforce strict fiscal discipline.” Andhra Pradesh’s rank has come down from 16th position to 17th in 2022-23. It faces high fiscal deficits and lags in the quality of expenditure and revenue mobilisation. The state needs to increase its resource mobilisation and improve its quality of expenditure, while adhering to the FRBM target. 2.Karnataka The report notes that with a revenue surplus of 0.6% in 2022–2023, the State has met its target. Against the 3.5% target set by the FRBM Act, the fiscal deficit was much lower at 2.1%. Further, compared to the previous year (i.e. 2021-22), the Fiscal Deficit to GSDP also declined from 4.1% to 2.1%, due to revenue surplus. While 2022-23 saw a decrease in the quality of expenditure from 54.5% (the 2014-15 to 2018-19 average) to 47.4%, the fiscal prudence score increased from 31.1% to 43.9%. The report suggested that the State may “focus on reallocating expenditure toward education and health. It may need to focus on increasing the revenues of the state.” Karnataka leads the Southern States in fiscal prudence. In 2022-23, the State has slipped from 3rd rank to 10th rank, though it is the best of the southern States, indicating an unfavorable fiscal situation of all the Southern States.  Except for revenue mobilization, Karnataka excelled across all parameters of the Fiscal Health Index. To better its position, Karnataka needs to review its expenditure pattern and increase its revenue mobilisation.  3.Kerala In 2022–2023, the revenue deficit declined to 0.9% of GSDP from 3.3% in 2021–2022. As a result of the decline in the revenue deficit, Kerala’s fiscal deficit also showed a downward trend. In terms of GSDP, the fiscal deficit declined from 5% in 2021–2022 to 2.5% in 2022–2023. The States’ reliance on non-tax revenue is affecting its fiscal stability. While observing that “the fiscal responsibility targets mandated by the Kerala Fiscal Responsibility (Amendment) Act, 2022, aim for the elimination of Revenue Deficits by 2025-26, with specific annual Revenue Surplus goals” the report suggests that the State “may focus on enhancing revenue mobilization through effective tax and Non-Tax strategies, optimizing resource efficiency, increasing Capital Expenditure in the Social Services Sector are increased, and rationalizing expenditures to improve its fiscal health.” Kerala has continuously encountered fiscal challenges for the past nine years. The State is lagging much behind in terms of quality of expenditure and debt sustainability. It is also burdened with substantial interest payments, inefficient capital expenditure and limited resource mobilisation. The State has to improve in terms of quality of expenditure, and find out new sources for resource mobilisation. It should also aim to curtail its debt and interest payments, which are already eating up major sources of income for the state. 4.Tamil Nadu From 2018–19 to 2022–23, the fiscal deficit as a percentage of GSDP increased from 2.9% to 3.4%. Since 2013–14, the revenue deficit has been increasing, with the State’s Own Tax Revenue to GSDP remaining stationary at 6% in the last 5 years. Though the State aimed to eliminate revenue deficit by 2021-22, it decreased only by around 22.2% in 2022-23 over the previous year. The State has set targets to maintain the ratio of total outstanding debt to GSDP at specific levels under the Tamil Nadu Fiscal Responsibility Act, 2003. However, it has exceeded these limits and witnessed an average ratio of 29% over the past 3 years. The report noted that Tamil Nadu “has witnessed significant growth in revenue and capital expenditure, with fiscal deficits and debt levels exceeding the FRBM target.” Tamil Nadu lags in fiscal prudence and needs to reduce its existing liabilities and non-essential spending. The State should strive to keep its fiscal deficit within the limits set by the FRBM Act, without any relaxation. It should also improve the quality of expenditure and need to look for more investments for development. 5.Telangana Although the state’s fiscal deficit target was set at 5% of GSDP, it managed to reduce the deficit to 2.48% in 2022–2023. The State achieved revenue surplus “after three years of deficits and remained compliant with the FRBM targets for both fiscal and revenue deficits in 2022-23.” The report observes that Telangana’s revenue growth is strong and encouraging and suggests that it spends more on increasing Capital Expenditure, especially in the health and education sectors. Telangana has maintained a healthy fiscal positions, due to an effective tax collection system, balanced approach to expenditure and resource mobilisation efforts. It tops in resource mobilisation for all periods.

Fiscal Prudence of Southern States Read More »

Highlights of Economic Survey 2024-25 on Success Stories of Tamil Nadu By B Chandrasekaran

Leave a Comment / Economic Reforms, Indian Economy, Tamilnadu Economy /

Highlights of Economic Survey 2024-25 on Success Stories of Tamil Nadu By B Chandrasekaran Highlights of Economic Survey 2024-25 on Success Stories of Tamil Nadu By B Chandrasekaran Chandrasekaran Balakrishnan February 5, 2025 Economic Reforms, Indian Economy, Tamilnadu Economy The Indian economy has been growing at a faster pace than many developed and developing economies. India has a massive goal of becoming a developed nation by 2050. Ascertaining the current status of economies is crucial for planning. Hence, the document of the Economic Survey report plays a vital role in bringing, a nuanced sectoral analysis that is fully packed with qualitative and quantitative data on the overall Indian economy and the regional economies of states. The latest economic survey 2024-25 focuses on “Driving domestic growth and resilience through deregulation” and deals with a wide range of segments like enhancing the productivity in agriculture and manufacturing; targeted measures of climate mitigations; decentralised urban governance; environmental protection by blending of technological innovations, MSMEs, etc. There is essential to understand that there is more need for the deregulation of governance itself as centralized governance in a country like India would be inefficient compared to decentralized local governance. The Survey Report notes, “The demand for state capability and capacity to respond to these developments and make progress on social and economic indicators amidst rising geopolitical conflicts will be unlike anything we have experienced since independence. Meeting that demand is a priority above all else.” Economic Survey also highlights the best practices, good governance, and innovative initiatives of regional economies of states. This exercise helps for replications by other states and bridge the gaps in welfare efforts to improve the lives of people. This analysis focuses on the case of Tamil Nadu whose many works have been highlighted in the Economic Survey 2024-25 as a success stories. Good governance at the regional level provides necessary fillip to growth and development of the region. The survey report highlights that “States have also participated in deregulation by reducing compliance burdens and simplifying and digitising processes. States have tried to reduce the cost of regulations by engaging with businesses to identify pain points. For example, Haryana and Tamil Nadu amended their building regulations 12 times in the past decade to make it easier to build”. In the age of digital revolution, ease of regulations for business operations especially financial operations helps industries to innovate for faster growth of MSMEs. The economic survey highlights that “The Governments of Goa and Tamil Nadu have set an example by adopting the TReDS platform to ensure timely payments to their MSME suppliers. Goa, heavily reliant on tourism, leveraged TReDS during the COVID-19 disruption to enhance supplier liquidity, facilitating payments for over 250 MSMEs since October 2020, with invoice discounts. Tamil Nadu joined TReDS in 2022 under the Raising and Accelerating MSME Performance (RAMP) program, supporting MSMEs in significant numbers. Their proactive adoption has inspired other states to follow suit.” Share of Value Additions Regional economies of states are emerging with competitive edges. About 43% of the total industrial Gross State Value Added (GSVA) during the financial year of 2022-23 at constant 2011-12 prices, comes from just four states such as the western states of Gujarat and Maharashtra and the southern states of Karnataka and Tamil Nadu. For the financial year 2022-23, more than one-fourth of the total services sector GSVA comes from Karnataka and Maharashtra. More than 50% of the total service sector GSVA comes from just a few states like Karnataka, Maharashtra, Tamil Nadu, Utter Pradesh, and Gujarat. These states also have more than 50% of the total industrial GSVA, suggesting that both feed into each other. Financial, real estate, and professional services have very high levels of concentration in a few states. Within the service sector, financial services are highly concentrated with Maharashtra (Mumbai), Tamil Nadu, Gujarat (GIFT City), and Karnataka accounting for more than 50% of total financial services GSVA. Further, more than one-third of real estate, ownership of dwelling, and professional services value added (GSVA) are from Karnataka, Maharashtra, Telangana, Haryana, and Tamil Nadu. Dual strengths–industrial and service: Maharashtra and Tamil Nadu typically represent states with reasonably strong industrial and service sectors. Their diversified economies integrate manufacturing with trade, financial services, real estate, and professional services. Among the larger states, “Tamil Nadu leads the pack with the highest concentration of factories per person, followed by Gujarat. Bihar hardly has any factories, while Uttar Pradesh hardly has any smaller enterprises.” The survey highlights Tamil Nadu’s Strategic Initiatives to Foster Footwear Manufacturing Growth. According to the Economic Survey 2024-25, Tamil Nadu is a leader in the traditional leather sector and now championing the growth of non-leather footwear. The state contributes to a 38% share in India’s footwear and leather products output, contributing to about 47% share in India’s total leather export. This sector generates more than 2 lakh employments. Agriculture and Transforming Rural Economies Economic Survey highlights, states have diversified towards crops where yield is high. For example, Andhra Pradesh diversified towards jowar, Madhya Pradesh towards moong, and Tamil Nadu towards maize. Diversity is also seen in inter-state variations in growth observed from 2011-12 to 2020-21. Andhra Pradesh was the leading performer with a CAGR of 8.8% in agriculture and allied sectors, excluding forestry and logging. Madhya Pradesh followed with 6.3%, and Tamil Nadu came in third with 4.8% among major states. The shift from cultivating traditional flowers to export-focused cut flowers highlights the industry’s transformation. Entrepreneurs across states like Tamil Nadu, Karnataka, Madhya Pradesh, West Bengal, Uttar Pradesh, and Maharashtra have capitalized on this opportunity, establishing sophisticated export-oriented floriculture units. The Rise of Horticulture India’s horticulture sector is more productive and profitable than traditional agriculture, emerging as a fast-growing industry. This can be seen from the fact that India is also a leading exporter, shipping 343,982.34 MT of fresh grapes worth Rs.3,460.70 crore (USD 417.07 million) globally in 2023-2410. Key grape-growing states are Maharashtra, Karnataka, Tamil Nadu, and Mizoram. Maharashtra leads in production, contributing over 67% of total

Highlights of Economic Survey 2024-25 on Success Stories of Tamil Nadu By B Chandrasekaran Read More »

Deterioration of State Finances of Tamil Nadu

Leave a Comment / Economic Reforms, Public Policy, Tamilnadu Economy /

By B.Chandrasekaran Deterioration of State Finances of Tamil Nadu By B.Chandrasekaran Deterioration of State Finances of Tamil Nadu By B.Chandrasekaran Chandrasekaran Balakrishnan January 31, 2025 Economic Reforms, Public Policy, Tamilnadu Economy In recent years, the Government of Tamil Nadu’s steadily increasing overall debts and excess borrowings for financing the welfare programmes has sparked fierce debate among ruling party leaders and opposition leaders. The opposition leaders argue that despite increased tax collections, the state government has continuously borrowed loans for funding the welfare programmes alone and is not able to fund increased capital expenditures, which would help the state economy to also fund the urban civic infrastructure facilities and services that are lagging. During the last few years, the fiscal management of Tamil Nadu has increasingly become a concern. However, the ruling government has not accorded adequate attention to the worrying trend of rising fiscal debt. In this context, it is very pertinent to look at the recently released report of the Reserve Bank of India (RBI) on “State Finances: A Study of Budgets of 2024-25- Fiscal Reforms by States” in December, 2024, with respect to the state of Tamil Nadu. The report contains fiscal data for the years 2021-22 (actuals), 2022-23 (revised estimates), and 2023-24 (Budget Estimates) besides other key data. The RBI report highlights that the states should make efforts towards strengthening fiscal prudence with the following measures on priority: “State-specific Fiscal Responsibility Legislations (FRLs) along with tax and expenditure reforms have strengthened their finances over the past two decades. In view of high debt levels, contingent liabilities, and the rising subsidy burden, State government finances would benefit from the adoption of a risk-based fiscal framework with provisions for counter-cyclical fiscal policy actions; A prudent medium-term expenditure framework; A clear, transparent, and time-bound glide path for debt consolidation; and Enhanced data dissemination and communication policies, including on reporting of outstanding liabilities, off-budget borrowings, and guarantees. Strengthening of State Finance Commissions is also critical for ensuring adequate and timely fund transfers to local bodies.” DISCOM drags down Finances of Tamil Nadu The level of revenue deficit in States such as Haryana, Kerala, Punjab, Rajasthan, Tamil Nadu, and West Bengal witnessed a level much higher than the all-state average during the period of 2021-22 to 2023-24. With respect to Tamil Nadu, the revenue deficit for 2021-22, 2022-23, 2023-24 (RE) and 2024-25 (BE) were 2.2%, 1.5%, 1.7% and 1.6% in GSDP respectively. These are higher than all India levels. One of the major indicators of the deterioration of state financial health is the continuous losses incurred by the state electricity department and the failure to undertake institutional reforms apart from funding freebie schemes. According to the RBI Report, six states contribute 75% of the total national losses incurred by electricity distribution companies (DISCOMs) which amounts to Rs. 6.5 lakh crores (2.4% of GDP) by 2022-23. Tamil Nadu is one of six states with the largest share of 26% in national level losses, followed by Rajasthan (15%), Uttar Pradesh (15%), Madhya Pradesh (10%), Telangana (10%) and Maharashtra (5%). The RBI Study on State Finances-2023-24 observed that “Power distribution has strained State finances due to persistent operational inefficiencies and significant under-recoveries. Receipts from the power sector constitute less than a tenth of the corresponding revenue expenditure incurred by the States.” By March 2023, Tamil Nadu DISCOM reported losses of over Rs. 1.6 lakh crores. The major issues in the context of DISCOM finances highlighted are low tariff rates, high procurement costs of power, cross-subsidisation, and the dominance of State authorities which limits decision-making autonomy (Pinaki Chakraborty and Kaushik Bhadra, 2024). One of the remedies suggested by experts is to increase tariffs in electricity utility rates across different categories and reduce AT&D losses with smart meter systems and institutional reforms. In fact, analysis shows that more than a 50% increase in tariffs would be required in Madhya Pradesh, Tamil Nadu, and Rajasthan where tariffs are already higher than the national average. However, Tamil Nadu has linked tariff increases to inflation for automatic annual adjustments (MERC, 2023; TNERC, 2023). In order to finance the expenditures of states over and above the revenues, the state governments borrow loans. As per RBI Report, the net market borrowings of States rose by 38.2% to Rs.7.17 lakh crore in 2023-24, with Uttar Pradesh, Maharashtra, Tamil Nadu, Karnataka, Andhra Pradesh, Rajasthan, West Bengal, and Telangana amongst the major borrowing States. Also, States such as Madhya Pradesh, Maharashtra, Puducherry, Punjab, Rajasthan, Tamil Nadu, and Uttar Pradesh undertook re-issuances of loans during the year (2024-25). Overall, for the states with an increasing focus on capital expenditure, the ratio of revenue expenditure to capital outlay (RECO) of the States has seen a welcome decline from 6.3% in 2021-22 to 5.2% in 2024-25 (BE). Unfortunately, a state like Tamil Nadu has 7.3%, which is higher compared to states like Gujarat (2.9), Karnataka (5.5), Maharashtra (6.1), and Telangana (6.6). Total Revenues of Tamil Nadu Over the last three years period from 2022-23 to 2024-25, the overall revenue of Tamil Nadu increased by 22.7%. Similarly, the total tax revenues and Tamil Nadu‘s Own Tax revenues increased by 29.6% and 29.9% respectively during the same period (See Figure 1).                                                        Source: RBI Report on State Finances 2024-25 Capital Outlay and Expenditure The capital outlay of Tamil Nadu has not increased substantially over the last three years. The share of capital outlay in development expenditure has declined from 19.1% in 2022-23 to 18.6% in 2024-25 (BE). Figures 2 and 3 reveal the substantially decreased overall capital expenditure over the last three years. This shows the poor attention given by the state government during the period.                                                             Source: RBI Report on State Finances 2024-25      

Deterioration of State Finances of Tamil Nadu Read More »

Expansion of City Corporations and Municipalities Merely Does Not Guaranty Quality of Services and Facilities in Tamil Nadu

Leave a Comment / Democracy and Institutions, Public Policy, Tamilnadu Economy, Urban Development /

Expansion of City Corporations and Municipalities Merely Does Not Guaranty Quality of Services and Facilities in Tamil Nadu By B.Chandrasekaran Expansion of City Corporations and Municipalities Merely Does Not Guaranty Quality of Services and Facilities in Tamil Nadu By B.Chandrasekaran Chandrasekaran Balakrishnan January 28, 2025 Democracy and Institutions, Public Policy, Tamilnadu Economy, Urban Development As the nation embarks on Viksit Bharat@2047, its ambitious plan to make India a developed country by 2047, it is imperative that the country develops organically with the local bodies driving the economic development and also benefitting from it. If this opportunity is missed, the gains derived from the 73rd and 74th Constitutional amendments would dissipate. To this end, the second-generation institutional reforms of urban local bodies (ULBs) need to be taken up. Despite new initiatives like Smart City Mission, AMRUT, etc., the ULBs continue to face challenges in providing basic civic facilities like water supply, sanitation, urban public transport, all-weather road connectivity, stormwater and drainage, solid waste management, sewage, public sanitary facility, street lights, safety, and security, etc. Hamstrung by inadequate decentralisation, the local governments are unable to raise funds and channelise development projects to solve physical infrastructure facilities. Moreover, the funds allocated by the states are always disproportionate to the requirements and spending on developmental projects is scarce and riddled with quality issues. Status of Local Bodies in Tamil Nadu Take the case of Tamil Nadu, which envisions becoming a trillion-dollar economy by 2030. While the State is the most urbanised (53% population) in the country, the civic facilities that its cities and town offer to its residents are no different from any other poorly managed cities and towns in the country. The predominant reason is the lack of financial and administrative autonomy of the ULBs. The recent efforts to improve some of the services have also not yielded sustainable results. Given this background, the government of Tamil Nadu has recently announced proposals to expand the existing geographical coverage of urban ULBs limits by merging nearby municipalities into city corporations, town panchayats into municipalities, and village panchayats into town panchayats. Some of the major factors for the expansion of urban areas include increase in population, popular demand from people, and an increase in tax revenues. The following are the key announcements of the Government of Tamil Nadu’s Department of Municipal Administration through the issue of G.Os notified on 31st December 2024: Expansion of 16 municipal corporations including Greater Chennai, Coimbatore, Cuddalore, Dindigul, Erode, Karur, Hosur, Madurai, Salem, Tiruchirapalli, Tiruppur, Avadi, Kumbakonam, Thanjavur, Thoothukudi, and Sivakasi by annexing 4 municipalities, 5 town panchayats and 149 village panchayats; 41 municipalities including Tiruvarur, Tiruvallur, and Chidambaram, are to be expanded by annexing 1 town panchayats and 147 village panchayats; Formation of 13 new municipalities including Kanyakumari, Harur, and Perundurai; Formation of 25 new town panchayats including Yercaud, Kalayar Koil and Thirumayam; and Annexation of 29 village panchayats with 25 town panchayats. Advantages of Geographic Expansion Expansion through mergers increases land values thereby boosting the real estate and related sectors. The expanded city corporations and municipalities may get relatively higher fund allocation for improving the infrastructure development facilities and services. Decentralised regulation of planned development of the city at least on paper if not for implementation in letter and spirit. Disadvantages of Geographic Expansion The citizens of expanded ULBs may bear higher taxes for services like water, property tax, municipal waste disposal, etc. The expansion may result in parent ULBs being unable to cater to the needs of its newer territory. The newly added areas either continue with existing services or face neglect having lost its erstwhile independent identity. Incompatibility between the vision of the parent ULBs and the needs of the merging units. Issues with Expansion through Mergers Often ULBs are expanded for political reasons or to obtain approvals from the Centre for new projects, like metro train services, which require a particular size of population. Further, ULBs are already financially stressed and the state governments do not give adequate funds after the merger, aggravating their financial position. Furthermore, expansion through merger goes against the principle of local governance where small is considered beautiful. There is absolutely no need for mergers just to develop infrastructure, which may be developed as there are. Prerequisites for Expansion Any merger of ULBs should be done only after existing areas of an ULB achieve the desired levels of reasonable, minimum standards of urban infrastructure and quality of life. Further, a thorough study has to be made on the likely benefits and issues with prospective mergers from administrative, financial and other perspectives. If ULBs are really empowered through adequate decentralisation, mergers may be proposed by the ULBs themselves or, they may explore partnerships and sharing of resources without formal mergers. All the decision-making process has to be decentralised, moving closer to the local level and ward level for the participation of people. Only the technical aspects have to be decided at the state or regional level to support ULBs effectively and on timely. Anything on the contrary would create chaos as witnessed in big cities. like recent floods and inundations during regular monsoons. Several years ago, the scheme on Providing Urban Amenities to Rural Areas (PURA), a vision of Dr APJ Abdul Kalam, was implemented in a few states like Andhra Pradesh, Kerala, Maharashtra, Puducherry, Rajasthan, and Uttarakhand. It is a Public Private Partnership scheme with a clear framework for governments, state governments, the private sector, and local government to take advantage of improving facilities and services with 10 years of maintenance services. Why not try something like this new scheme to make our semi-urban and rural areas with all infrastructure facilities? B.Chandrasekaran is an Economist and Founder Chairman of the AgaPuram Policy Research Centre, Erode. Views expressed by the author are personal and need not reflect or represent the views of the AgaPuram Policy Research Centre.  

Expansion of City Corporations and Municipalities Merely Does Not Guaranty Quality of Services and Facilities in Tamil Nadu Read More »

Financial Health of Municipal Corporations in Tamil Nadu by B.Chandrasekaran

Leave a Comment / Public Policy, Tamilnadu Economy, Urban Development /

Financial Health of Municipal Corporations in Tamil Nadu by B.Chandrasekaran Financial Health of Municipal Corporations in Tamil Nadu by B.Chandrasekaran Chandrasekaran Balakrishnan January 3, 2025 Public Policy, Tamilnadu Economy, Urban Development Introduction The federal governance structure has envisaged a three-tier institutional mechanism for national, State-level, and local-level governance. While the system looks theoretically sound, the issue with the local bodies is that they exist only for elections, where political parties compete to have a maximum number of their members in office. Lacking institutional, administration, and financial autonomies and the associated responsibility and accountability, the local bodies exist as mere extensions of state governments with elected office-bearers having limited authority. One of the prime reasons for this unfortunate reality is the continuing colonial mindset, which promoted centralised governance. Contrary to the widely held belief that the rural local bodies (Village Panchayats) and urban local bodies (Town Panchayats, Municipal Corporations, and City Corporations) became functional only after the 73rd and 74th Constitutional Amendments, India has a long history of local governance, with panchayati system traced back to ancient vedic era. As for modern Indian references, Shri.VS Srinivasa Sastri, a freedom fighter and classical liberal thinker wrote a pamphlet titled “Self-Government for India-Under British Flag” in 1916, delineating the existence of local governance in India for long and listed 18 major subjects of local governance for administration and delivery of services for people’s welfare. Financial Autonomy of Local Bodies To exercise institutional autonomy, the local bodies need financial strength. An analysis of the financial status of the local bodies reveals the actual achievements and challenges of the local bodies. In this connection, the reports of Reserve Bank of India on the Municipal Corporations (MCs) and Panchayati Raj Institutions (PRIs), throw adequate light on their financial status and challenges. The latest RBI’s Report on Municipal Finances released on November 13, 2024, with the theme of “Own Sources of Revenue Generation in Municipal Corporations: Opportunities and Challenges” provides a first-of-a-kind analysis of the budgetary data for 232 municipal corporations (MCs), which covers more than 90% of total MCs in the country. The main findings are reproduced below: While the revenue account of the MCs has remained in surplus, their heavy reliance on transfers and grants from upper tiers of government continues. The own revenue sources are not adequate for meeting the revenue expenditure of most of the MCs, thereby affecting their functional and financial autonomy. Comprehensive reforms, including the adoption of technologies like GIS mapping and digital payments, rate rationalisation and their periodic revisions as well as better monitoring to plug leakages can help in the augmentation of their own source revenues. Key statistics The following are the key data reproduced from the report: MCs in Maharashtra, Gujarat, Karnataka, Madhya Pradesh, Haryana, and Telangana have surplus budget of above Rs.1,000 crore in 2023-24. MCs in Delhi, Andhra Pradesh, Rajasthan, Odisha, West Bengal, and Tamil Nadu have surplus budget of above Rs.100 crore. However, some MCs in Tripura, Jharkhand, Himachal Pradesh, Bihar, Chhattisgarh, Jammu and Kashmir, Uttar Pradesh, and Kerala have deficit budget, ranging from Rs.2 crore to over Rs.700 crore. Interestingly, Kerala, which is widely believed to have a strong local body system, has budgeted for a revenue deficit of Rs.789 crore for 2023-24. The revenues of MCs as a proportion of the revenues of the respective State governments vary widely. Delhi (34.5%), Maharashtra (14.1%), and Gujarat (7.8%). The revenue receipts of MCs amounted to 0.6% of GDP in 2023-24. Tax revenues are the largest source of revenue of the MCs (30%) followed by revenue grants, contributions, and subsidies (24.9%) and fees and user charges (20.2%). The ratio of MCs’ tax and non-tax revenue to the respective State government’s tax and non-tax revenue varied across States, indicating a vertical imbalance. Property taxes are a major source of own tax revenue of the MCs in India, constituting more than 16% of revenue receipts and more than 60% of their own tax revenue. The total expenditure of the MCs was at 1.3% of GDP. The revenue expenditure/GDP ratio hovered around 0.5 per cent of GDP, while the capital expenditure/ GDP ratio was 0.8%. The share of revenue expenditure in total expenditure was at 38.5% The proportion of capital expenditure in total expenditure for the MCs was 61.5% as compared with 24.8% and 21.4% for State governments and the Central government, respectively. The ratio of revenue expenditure to capital expenditure was 0.63 for the MCs as against 3.7 for the Centre and 3.0 for the States. Status of MCs in Tamil Nadu By the end of the financial year 2023-24, Tamil Nadu had a total of 21 MCs, up from 15 MCs in 2020-21. By mid of 2024-25, the state has 25 MCs. The own tax ratio of MCs in Tamil Nadu was 44.3% as compared to the highest level at 53.8% in Karnataka and 50.3% in Telangana. The MCs in Tamil Nadu were able to maintain the ratio of capital expenditure with more than 50% in 2023-24 (BE) like in Maharashtra, Andhra Pradesh, Telangana, Jharkhand, Uttar Pradesh, Odisha, and Bihar. The per capita capital expenditure of the MCs in Maharashtra, Uttar Pradesh, and Tamil Nadu exceeded the All-India level (Rs.11,532/-) during 2023-24. However, per capita spending by MCs in Tamil Nadu was far behind the level of Maharashtra. The ratio of Revenue Expenditure to Capital Expenditure in 2023-24 (BE) for MCs in Tamil Nadu was below the All-India Level (0.63). Also, Own Source Revenue as a Ratio of Revenue Expenditure (Average of 2020-21 to 2022-23) in Tamil Nadu was below the All-India Level. MCs’ Tax revenues increased by 10.28% to 44.27% in 2023-24 from 33.99% in 2019-20. Revenue expenditures for operations and maintenance increased by 7.29% to 34.72% from 27.43% during the same period. Tables 1 and 2 show the details of the same. Table.1: Revenue Receipts of Municipal Corporations in Tamil Nadu (Figures in %)     2019-20 Accounts) 2020-21 (Accounts) 2021-2022 (Accounts) 2022-23 (Revised Estimates) 2023-24 (Budget Estimates) A. Tax Revenue 33.99 31.13 34.26 45.61

Financial Health of Municipal Corporations in Tamil Nadu by B.Chandrasekaran Read More »