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The Government of Tamil Nadu’s achromatic insubstantial is simply a broad investigation of the State’s fiscal presumption and economical conditions. Detailed similar the achromatic insubstantial prepared by the DMK successful 2021, the TVK’s 120-page papers begins with an important line: ‘it is neither an workout successful retrospective blasted nor a governmental statement’. In that spirit, this is simply a genuine exercise. It so offers an honorable relationship of what went incorrect with taxation collection: a shrinking basal and leakages embedded successful some gross postulation and expenditure patterns. While its diagnosis is rigorous, what is not clear, however, is however the authorities is going to hole the leakages and manoeuvre the payment that it has promised during its predetermination campaign.
The achromatic insubstantial lays bare the structural weaknesses facing Tamil Nadu’s system and the imaginable people correction which successful that consciousness has a batch much continuity with the earlier 1 submitted by the DMK. Both virtually authorities that “the existent levels of fiscal shortage are unsustainable chiefly due to the fact that a important information of the fiscal shortage is simply to money the gross deficit”. It means the State is simply borrowing to money existent depletion alternatively than to make assets. To beryllium sure, for each rupee borrowed astir 60 paise goes to existent consumption. But 1 has to beryllium cautious of speechmaking of excessively overmuch of this arsenic important expenditure for wellness and acquisition are nether the gross account.
In an economy, the authorities needs to rise resources to wage for the proviso of nationalist goods and services, physique societal and carnal infrastructures needed for maturation and support the susceptible from the marketplace forces. In that sense, each argumentation is simply a governmental prime with losers and gainers not conscionable wrong the contiguous procreation but besides of crossed generations since nationalist indebtedness shifts the load of outgo to aboriginal governments. The achromatic insubstantial says that the State is heavy successful indebtedness and its fiscal shortage is beyond the prescribed limit. On average, an idiosyncratic ₹38,000 successful each taxes to the State and the Union authorities and receives astir ₹54,500 worthy of subsidies and services. The spread is typically funded by borrowing. The consolidated indebtedness of each idiosyncratic is past astir ₹1.29 lakh, and the cumulative indebtedness is astir 28% of the State income, which is the origin for interest today.
Collapse of gross generation
The superior interest that the study flags is not conscionable indebtedness but of the illness of the gross procreation itself. While the achromatic insubstantial shows the relationship of gross procreation of the past 5 years, the illness precedes this by astatine slightest a decade. Make nary mistake, Tamil Nadu was 1 of the fewer States that predominantly sustained itself connected its ain gross for its expenditure – astir 70% of its expenditure from its ain taxation successful crisp opposition to States specified arsenic Bihar and Uttar Pradesh which mostly trust connected the Centre’s transfer. With the instauration of the GST successful 2017, States person mislaid their sovereignty connected taxation. Tamil Nadu suffered the most. The State’s Own Tax Revenue (SOTR) to GSDP, which was 7.92% successful 2011-12, has been steadily declining, and was down to 5.93% successful 2021-22 and further down to 5.45% successful 2025-26.
While the achromatic insubstantial intelligibly shows that the diminution is dispersed crossed each large taxation heads — GST, petroleum VAT, State excise, stamp work and centrifugal conveyance tax, the GST unsocial accounts for astir 53% full taxation revenue. Despite having the 2nd largest system with the size of ₹35.29 lakh crore of GSDP, its GST postulation was ₹72,008 crore little than that of Karnataka (₹87,256 crore), and Gujarat (₹80,823 crore). Beside the systemic corruption and inefficiencies successful taxation collection, predominance of the work assemblage besides contributed to the diminution successful GST collection. It appears galore units wrong the assemblage are beyond the taxation net.
Similarly, centrifugal conveyance taxation postulation has not kept gait since the fig of vehicles registered successful the State has not kept up. Not to notation stamp duties successful rent-seeking sectors specified arsenic existent property which is known for undervaluation of the spot astatine registration and excessive leakages and corruption. Even mining gross is among the astir striking examples of stagnation successful non-tax income. Besides corruption successful valuation, leakage successful the appraisal of insignificant mineral extraction besides contributed to the decline. The cardinal sectors that thrust the State successful this indebtedness trap are the powerfulness assemblage and transport. The powerfulness assemblage unsocial carries ₹2.47 lakh crore of debt. The State has historically built progressive powerfulness subsidy exemplary – taxing industries and paying for mediocre and farmers which has go sites of governmental rent-seeking tied to electoral cycles.
Lost taxation sovereignty and Union transfer
Beside the dependable diminution successful its ain taxation collection, the State has besides been progressively losing its stock successful the Union transfer. For instance, Union taxation devolution and grants-in-aid unneurotic constituted astir 34.95% of Total Revenue Receipts successful 2021-22 and it declined to 25.5% successful 2025-26. Again, this diminution precedes a decade. The State’s stock successful full transportation was 5.305% successful the 12th Finance Commission period, but it came down to 4.969% successful the 13th Finance Commission play and fell down to 4.023% for the 16th Commission.
This declining stock is owed to the look adopted by the successive Finance Commissions. The precocious weightage to the per capita income region combined with colonisation has disadvantages. The State has go a unfortunate of its success. Even the value GDP publication introduced successful the 16th Finance Commission did not assistance arsenic the look was inverted. Neither the criteria of country nor wood screen could help.
On the different hand, the sharable divisible excavation has been shrinking acknowledgment to the arbitrary cess and surcharges imposed by the Union authorities that takes distant the morganatic resources of the States. In that sense, the State is simply a unfortunate of some vertical and horizontal distribution. With declining Union transfers and the erosion of its ain gross base, Tamil Nadu’s authorities size, measured by full expenditure arsenic a stock of GSDP, has shrunk, weakening the State’s fiscal capacity. This unneurotic limits the State’s quality to intervene successful the economy. As the achromatic insubstantial shows, that astir 64% of each rupee of gross receipts successful 2025-26 is pre-committed connected the relationship of salaries, pensions and interest. With the inflexible non-discretionary obligations of 23% per cent, this pre-committed expenditure goes up to 87% leaving small country for immoderate further expenditure oregon immoderate caller schemes. Global uncertainty oregon immoderate exogenous daze could marque the system paralysed.
Debt, demography and scissors effect
This imaginable indebtedness trap besides comes astatine a clip erstwhile the State is witnessing faster demographic change. It’s aging faster than immoderate different ample State successful India. Tamil Nadu’s median property is 34.25 years — astir 9.5 years older than Uttar Pradesh and its old-age dependency ratio is projected to summation from 20.6 successful 2021 to 32.7 by 2036. This has 2 implications. The quality to repay the indebtedness is limited, the insubstantial argues, due to the fact that a shrinking working-age colonisation means a shrinking taxation base. It besides means the request for higher societal expenditure arsenic the stock of aged colonisation goes up. The enactment betwixt a rising indebtedness banal and a shrinking working-age colonisation tin make information for a indebtedness trap which demographers telephone ‘scissors effect’ — the widening spread betwixt gross capableness and expenditure obligations.
However, Tamil Nadu’s occupation contiguous is not fiscal profligacy oregon corruption. The pressing occupation is its exemplary of inclusive maturation itself. The existent situation frankincense is getting investment, generating decent jobs, improving wages, portion actively renegotiation fiscal abstraction with the Union. The payment architecture that the State has built is not enough. Educated younker who rallied down the TVK are not seeking much welfare, but decent jobs and wages. Welfare can’t beryllium a substitute for jobs and wages. It is clip to get the maturation fundamentals right, which necessitate concern successful education, health, and nationalist infrastructure. Chief Minister Joseph Vijay frankincense has the tremendous work not lone to enactment the inclusive maturation exemplary backmost connected track, but besides to reclaim fiscal autonomy from the Union.
