Forward of the primary price range of Tamil Nadu Chief Minister C. Joseph Vijay’s TVK authorities scheduled through the July parliamentary session, a white paper launched by the just lately elected Congress has highlighted the dire state of the state’s funds.
The white paper covers the interval from 2021-22 to 2025-26 when MK Stalin-led DMK dominated the state.
Most of the issues recognized within the white paper are plaguing a number of states throughout the nation, from rising debt and declining revenues to rising curiosity funds that crowd out improvement and capital expenditures. Nonetheless, with TVK coming to energy on the again of necessary election guarantees, the white paper seems to offer the brand new authorities leeway to implement plans that can require important fiscal spending.
Throughout the Tamil Nadu elections, TVK’s ballot guarantees ranged from month-to-month monetary support to ladies, youth and farmers to elevated pensions and remuneration for civil servants past current spending.
The white paper makes use of price range and different publicly accessible information to indicate that Tamil Nadu is closely indebted, has dedicated to giant quantities of spending, and has shrinking revenues, leaving little room to introduce new establishments and fund capital funding.
debt disaster
Making an allowance for the financial shock through the COVID-19 pandemic, the white paper mentioned Tamil Nadu’s debt-to-GDP ratio will solely improve whereas different comparable states have seen declines or stabilization.
“Debt inventory grew at a CAGR of 14.3% over the five-year post-COVID-19 interval, however nonetheless outpaced nominal GDP progress for many of the interval,” the report mentioned. “The quantity of debt added within the final 5 years alone is bigger in absolute phrases than the whole debt inventory accrued by the nation in its first 60 years.”
In 2020-21, Tamil Nadu’s excellent debt amounted to Rs 5.13 billion, accounting for 28.7% of the state’s GDP. Based on revised estimates, the debt will attain Rs 10,000,000 crore, or 28.3 per cent of the state’s GDP, by 2025-26. Within the interim price range for 2026-27, the excellent debt stood at Rs 10.72 billion, or 26.12 per cent of the state’s GDP.
excellent debt of tamil nadu
The white paper in contrast Tamil Nadu’s debt scenario with different giant developed states and located that Maharashtra’s excellent debt in 2025-2026 was barely greater at Rs 10.03 billion, whereas Karnataka and Gujarat had been decrease at Rs 7.68 billion and Rs 5.25 billion, respectively. Nonetheless, on a per capita degree, Tamil Nadu has by far the very best debt, at Rs 129,000 crore, in comparison with Karnataka’s Rs 1.11 lakh crore, Maharashtra’s Rs 77,569 crore and Gujarat’s Rs 70,798 crore.
Between 2008 and 2020, Tamil Nadu’s debt underneath the earlier AIADMK and DMK governments was persistently beneath the nationwide common and solely crossed the all-India common in 2021, in keeping with information launched by the RBI. Based on RBI calculations, the price range estimates put the debt-to-GDP ratio of each Tamil Nadu and the nationwide common at 29.2% in 2025-26; Eighteen states surpassed the all-India determine, with states like Punjab reaching 46.4%. Nonetheless, giant states akin to Karnataka, Maharashtra and Gujarat remained beneath the nationwide common in 2025-2026.
A serious contributor to the rise in excellent debt is loss-making public enterprises, notably the ability sector, which accounted for 14% of complete authorities debt, or 1.42 billion rupees, as of March 2026.
“Spiral of debt and curiosity”
The white paper warns of curiosity funds on Tamil Nadu’s rising debt, saying the state is now coming into a “debt and curiosity spiral” and the necessity to finance debt repayments via additional borrowing.
“The rise in curiosity is itself a motive for additional borrowing, because the nation has to fulfill the curiosity funds from someplace. If earnings is inadequate, further borrowing will fill the hole,” the report mentioned. “In contrast to institutional spending that may be deferred, capital initiatives that may be phased in, or wage will increase that may be gradual, curiosity on excellent debt have to be paid in full and on time.”
The white paper factors out that nearly 1 / 4 of Tamil Nadu’s income is allotted to curiosity funds earlier than another allocation. As per interim price range estimates, curiosity funds are anticipated to extend from Rs 41,564 crore (or 20.03 per cent of complete income) in 2021-22 to Rs 78,677 crore (or 22.83 per cent) in 2026-27. Within the interim price range, curiosity funds are anticipated to cross Rs 1 billion by 2028-29, accounting for 23.54% of complete income.
Curiosity funds in Tamil Nadu
Tamil Nadu’s curiosity funds are far greater than main states akin to Maharashtra, the place curiosity funds account for 10.3% of the state’s income. Comparable figures for 2025-2026 present that in absolute phrases, no state pays extra annual curiosity than Tamil Nadu.
The white paper’s curiosity evaluation additionally reveals the boundaries of states’ personal potential to generate income via taxes. A couple of-third of the rupees collected via Tamil Nadu’s personal tax efforts go towards curiosity funds annually.
Particularly, the report mentioned curiosity funds now considerably exceed capital expenditures used to create new property, together with public infrastructure. Within the interim price range for 2026-27, capital expenditure was greater than Rs 19,000 crore lower than curiosity funds. As per the revised price range estimates for 2025-26, the distinction was Rs 17,700 crore. The final time capital expenditure exceeded curiosity funds was in 2016-17. Previous to that, Tamil Nadu’s capital expenditure exceeded curiosity funds for 5 consecutive years.
Curiosity funds aren’t the one expense that is rigid. Tamil Nadu’s promised expenditure (which incorporates curiosity funds in addition to civil servant salaries and pensions) amounted to Rs 1.25 billion in 2021-22, accounting for 60.4% of the overall income. By 2025-2026, this determine elevated to Rs 1.89 billion, accounting for 64.4% of complete income. In distinction, every of Karnataka, Gujarat and Maharashtra has dedicated spending that’s lower than 50% of their complete income.
lower in earnings
The white paper says that underlying the expansion in debt and curiosity funds is the state’s incapability to generate income.
The state’s complete income as a proportion of GDP has been persistently lowering in recent times, from 10.01% in 2021-22 to eight.32% in 2025-26. The revenue-to-GDP ratio is a measure of fiscal capability and the flexibility to fulfill expenditures with out borrowing. On this regard, Tamil Nadu has carried out worst amongst main states akin to Maharashtra, Gujarat and Karnataka, despite the fact that it was outperforming these states till just a few years in the past.
In Tamil Nadu, tax income elevated from Rs 1.23 billion in 2021-22 to Rs 1.93 billion in 2025-26, however its share within the state’s GDP shrank from 5.93% to five.45%, indicating a decline within the state’s fiscal independence. Nonetheless, on this side, though Tamil Nadu exceeds Gujarat at 5.19%, it falls behind Maharashtra’s 8.03% and Karnataka’s 5.89%.
tamil nadu earnings
The White Paper additionally locations a few of the blame on the Heart for the decline in funding devolution. In 1995, the tenth Finance Fee gave Tamil Nadu a 6.64% share of central taxes. This determine fell to 4.097% within the newest sixteenth Finance Fee, a decline of 38% over the previous 30 years.
“For states accounting for greater than 9% of the nationwide economic system and greater than 6% of the nation’s inhabitants, simply 4% of tax devolution was discovered to be inadequate,” the white paper mentioned.
Because of this, Tamil Nadu has the second-largest income deficit (the distinction between earnings and expenditure) within the nation, forcing the state to tackle extra debt. In 2004, the Tamil Nadu Fiscal Duty Act (TNFRA) set a goal of zero income deficit, however that deadline has been revised eight occasions, most just lately to 2026-27.
“Tamil Nadu’s income deficit is structural. It has existed yearly since 2013-14 and has persevered via the restoration, growth and post-COVID-19 rebound. This structural characteristic is pushed by the simultaneous incidence of two points of the income stability: strengthening expenditure and weakening income,” the white paper mentioned.
