Tamil Nadu’s fiscal position has deteriorated substantially since 2021 with rising debt, record revenue deficits, slowing own-tax revenue growth, and growing committed expenditure burdens, a white paper on state finances released by the new TVK Government on Tuesday, said.
Plugging revenue leakages with better administration is a key solution that the government lays down as it sets out to improve the financial position of the State while delivering on its welfare-heavy poll promises.
Among its six principal findings is that the State’s outstanding debt has grown at a CAGR of 14.3 per cent in the last five years and is at ₹10 lakh crore in FY26. Off-budget contingent liabilities and guarantees push this total fiscal exposure to Rs. 13.18 lakh crore, it adds.
The debt-to-GSDP ratio at 28.3 per cent is consistently elevated and is higher than peer states.
Further, committed expenditure -salaries, pensions and interest- have gone up from about 60 per cent of revenue receipts to 64 per cent today, making capex the casualty, it said.
The report pegs revenue deficit of FY26 at a six-year high at about 2.22 per cent of GSDP, exceeding even the Covid-affected year of FY21 in absolute terms. This was roughly 2.5 times that of Karnataka and Maharashtra.
As per the report, the widening revenue deficit since FY23 is due to various reasons introduction of new recurring commitments without parallel revenue mobilisation, deferring certain own-tax reforms, and limited focus on capex.
As for the own-tax revenue performance, the report calls it “policy and administration driven.”
“The SoTR-to-GSDP ratio stood at 5.93 per cent in FY22 and has declined in successive years to 5.45 per cent in FY26. Peer states have either recovered in the post-Covid window or maintained momentum,” it said. While peer States have improved upon their tax effort,TN did not. Measured against FY23 peak of 6.33 per cent of GDP, this comes to ₹51,000 crore of revenue foregone in the last 3 years, the report said.
The white paper calls the Interim Budget 2026-27 estimates as optimistic and off mark.
“The FY27 revenue deficit could reach roughly ₹90,500 crore against about ₹48,696 crore shown in the Interim Budget, and the fiscal deficit could approach ₹1.64 lakh crore against the ₹1.22 lakh crore budgeted,” it said.
The decline is driven by leakages and systemic corruption in revenue-collecting departments and not any structural economic disadvantage, TN Finance Minister N Marie Wilson, noted while releasing the report. We will undertake corruption-free governance, improve the revenue mobilisation by efficiency, and look at PSU reforms to get out of this situation, he said.
What makes the recovery urgent is that Tamil Nadu is ageing faster than any other large State, he added, pointing to a shrinking tax base and expanding social-security and healthcare obligations.
MA Siddique, Additional Chief Secretary, Finance Department, said their efforts will be to tide over the financial position without impacting the useful schemes.
Published on June 16, 2026
