On Tuesday, a number made news: 13.18 lakh crore. That, in rupees, is Tamil Nadu’s combined debt and financial liability, said finance minister Marie Wilson. Some gasped, some frowned; economists just paused to ponder.
The promised document of C Joseph Vijay’s government has sparked a debate over the state’s debt levels, revenue performance, and fiscal management. But economists argue that its lasting value will depend less on political controversy and more on whether it prompts a rethink of how the state mobilises and spends money.
White Paper as a Fiscal Diagnostic
Suresh Babu, director of the Madras Institute of Development Studies, believes the white paper should be viewed as a fiscal diagnostic rather than a final verdict on the state’s finances. The white paper flags concerns ranging from rising liabilities and revenue leakages to underperforming tax collections and underutilised mining resources, he notes, underscoring the need to strengthen tax compliance and expand non-tax revenue.
Madras School of Economics director N R Bhanumurthy views the white paper as an analysis, not a solution. “In principle, I was one of those who had suggested that the state should bring out a white paper on its financial situation,” said Bhanumurthy. “To that extent, they have done a reasonably good job.” At the same time, he cautioned against treating the report as an end. “This is only a status report. What is more important is how to address the issues identified in it.”
Concerns Over Tax Revenue Performance
One of the key concerns raised is the relatively weak growth in ‘state’s own tax revenue’ (SOTR) despite strong economic expansion. Bhanumurthy noted that nominal GDP growth has remained above 10% in recent years. Against that backdrop, moderation in tax revenue growth warrants attention. “The growth in SOTR is certainly a cause for concern,” he said, adding that even the previous government had flagged similar issues.
The white paper compares Tamil Nadu’s performance with other states and points to areas where it has lagged. “I believe GST is one area where TN is performing below par compared with the three states used for comparison in the report,” Bhanumurthy said. While revenue growth has slowed across states, TN’s slowdown appears sharper.
Bhanumurthy believes improvements in tax administration could help bridge the gap. Advances in technology, data analytics, and artificial intelligence offer opportunities to strengthen compliance and reduce leakages. States could also learn from practices adopted elsewhere. “Given advances in technology and artificial intelligence, states should look at how places such as Karnataka and Gujarat are improving revenue administration and tax collection,” he says.
Debt and Expenditure Quality
The White Paper has drawn attention for presenting a broader measure of liabilities, including debt accumulated by public sector undertakings, pushing the overall figure close to ₹13 lakh crore. Bhanumurthy, however, does not see Tamil Nadu’s debt position as immediately alarming. “It remains below 30% of GSDP,” he says. The larger concern is the deterioration in expenditure quality, which, however, is not unique to Tamil Nadu.
“My concern is more about the debt-to-GDP ratio, or outstanding liabilities relative to GDP. That ratio will come down only if governments adhere to fiscal responsibility legislation, which essentially states that borrowing should not be used for consumption expenditure,” he says. “On the expenditure side, there must be expenditure rationalisation. On the revenue side, we need to examine whether GST and other taxes can become more buoyant.”
Rationalising Welfare Schemes
Bhanumurthy describes expenditure rationalisation as the logical next step after the white paper. Governments should periodically evaluate schemes, identify overlaps, and discontinue programmes that no longer deliver meaningful outcomes. “Just as a white paper exercise should ideally be done every five years, expenditure rationalisation should also be undertaken every five years,” he says, advocating sunset clauses for welfare schemes.
Mining Needs Separate Strategy
The white paper identifies untapped mining potential as a source of additional revenue. “There seem to be issues that go beyond fiscal management. That requires a separate study, a separate strategy, and a separate focus,” Bhanumurthy says. States like TN could learn from examples such as Odisha, which is often cited for better mining governance.
MIDS’ Babu says TN’s fiscal health requires a broader analysis that incorporates economic growth, public investment outcomes, and the developmental role of state institutions. He identifies three priorities.
First, strengthen tax compliance, improve GST administration, and expand non-tax revenues. “Fiscal consolidation will require action on both revenue mobilisation and expenditure management,” he says. Second, greater transparency in reporting state finances is needed. “Losses at public utilities and the growing use of government guarantees have created contingent liabilities that may not appear in conventional debt statistics but could eventually require budgetary support,” he notes. Third, adapting to demographic change. “An ageing population will increase spending on healthcare, pensions, and social protection, while slower growth in the working-age population could dampen economic expansion and future revenue growth,” says Babu. The combined effect, he warns, could place increasing pressure on public finances in the decades ahead.
