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Tamil Nadu’s Debt Debate: Politics vs. Reality

As the state’s 2025-26 budget approaches, opposition parties, led by the BJP, accuse the DMK government of plunging Tamil Nadu into a financial crisis due to rising debt. But does the data back their claims?


Why It Matters

  • Tamil Nadu’s debt is nearing ₹9 lakh crore, sparking political backlash.
  • Opposition claims every household owes ₹3 lakh, fueling public concern.
  • The state’s debt-to-GSDP ratio, however, remains within limits set by the 15th Finance Commission.

By the Numbers

  • Total Debt (2024-25): ₹8,33,361.80 crore
  • Debt-to-GSDP Ratio (2024-25): 26.41% (expected to drop to 25.75% in 2025-26)
  • Finance Commission’s Acceptable Limit: Up to 29.10% (2023-24)
  • Annual Borrowing Limit: 3% of GSDP (with 0.5% extra for power reforms)


The Bigger Picture

Shrinking Revenue: Tamil Nadu’s fiscal autonomy is under threat due to reduced tax devolution from the Union Government and GST implementation.

Unfair Distribution: The state receives only 30% of central taxes, far below the 41% recommended by the 14th Finance Commission.

Centralization: The Union Government retains 100% of cesses and surcharges, excluding states from key revenue streams.


Expert Take

Economist Jyothi Sivagnanam: "Debt must be assessed relative to GSDP, not in absolute terms. Tamil Nadu’s debt is within sustainable limits."

Inflation Factor: Comparing past and present debt without accounting for inflation is misleading.

Union Government’s Role: Central debt exceeds 60% of GDP, yet states like Tamil Nadu face stricter borrowing limits.


What’s Next

Finance Minister Thangam Thennarasu to presented the 2025-26 budget on March 14.

Focus on fiscal discipline and social welfare spending, despite revenue challenges.

Continued debate over financial centralization and state autonomy.


Bottom Line

Tamil Nadu’s debt, while significant, is manageable and within prescribed limits. The real issue lies in shrinking revenue sources and increasing financial centralization, which threaten the state’s fiscal health and autonomy.

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