Special Articles Tamil Nadu

Ph-D Holder, Lehman Bros Fame, Double Watch DMK Min PTR Waxed Eloquent About Rising TN Debt Under ADMK Regime, TN Becomes The Most Debt-Burdened State Under Stalin

March 4, 2025
The Commune

There has been growing concerns over the mounting debt on Tamil Nadu that is ultimately going to impact the common person in the state. From 2021 to 2025, the state’s debt has surged significantly, increasing from ₹4,56,660 crore in 2020-2021 to ₹8,33,362 crore in 2024-2025. Opposition parties have strongly criticized the ruling DMK government, accusing it of relying solely on loans and failing to take effective measures to address the escalating debt.

What Does RBI Say?

Did you know that Tamil Nadu has the highest outstanding debt among states, amounting to ₹8.3 lakh crore, reflecting a 108% increase? The state’s debt-to-GDP ratio stands at 31%. According to the RBI’s report titled “State Finances: A Study of Budgets of 2024-25”, Tamil Nadu’s outstanding liabilities from the issuance of State Development Loans (SDLs) stood at ₹5,96,619.2 crore as of 31 March 2024. This figure is projected to rise to ₹6,87,034.3 crore by 31 March 2025.

Of the total outstanding debt, ₹2,03,447.14 crore, or 34.1%, is due for repayment within the next 1 to 5 years. Additionally, 29.2% of the debt is set for redemption in the 5-10 year period, while 19.7% will mature after 20 years. Repayments in the 10-20 year period account for 11.5% of the debt, with 5.5% maturing in less than a year.

The State Finances Audit Report for the year ending March 2023, which was presented in the Assembly earlier this month, indicates that Tamil Nadu’s interest liability over the next decade (from 2023-24) will be ₹28,263.67 crore. Additionally, the state’s principal liability for market loans will amount to ₹3,75,951.97 crore.

According to the Comptroller and Auditor General (CAG), Tamil Nadu’s total liabilities typically include internal debt (such as market loans, ways and means advances from the RBI, special securities issued to the National Small Savings Fund, and loans from financial institutions), as well as loans and advances from the central government and public account liabilities.

As of 31 March 2024, Tamil Nadu’s total outstanding liabilities stood at ₹8,47,022.7 crore, and it is expected to reach ₹9,55,690.5 crore by the end of 31 March 2025, according to the RBI report.

Remembering The Words Of Foreign-Educated, Ph.D, Lehmann Bros Fame, DMK Fin Min Palanivel Thiaga Rajan (PTR)

On 9 August 2021, shortly after releasing a white paper on Tamil Nadu’s financial situation, the then DMK Finance Minister PTR Palanivel Thiagarajan stated, “There is no fiscal headroom left as Tamil Nadu, burdened by rising debt and interest costs, is trapped in a vicious cycle of debt.” He emphasized that the state’s fiscal situation is far worse than what has been publicly revealed, claiming to have merely exposed the tip of the iceberg.

PTR asserted, “Political will and administrative skill are essential,” but failed to outline what specific measures the ruling Dravida Munnetra Kazhagam (DMK) government would prioritize. The white paper, however, highlights a significant challenge in addressing the enormous losses faced by the Tamil Nadu State Electricity Board (TNEB). The state-owned giants, TANGEDCO and TANTRANSCO, are burdened with both high operational costs and poor revenue recovery.

The white paper also pointed out that subsidies, along with various populist schemes and welfare programs, were putting a significant strain on the state’s finances. Subsidies have sharply increased over the years, rising from 12.65% (₹4,841.80 crore) of revenue expenditure and 1.48% of GSDP in 2006-07 to 27.06% (₹62,338.84 crore) of revenue expenditure and 3.21% of GSDP in 2020-21.

PTR called for seizing the current opportunity to implement “once in a generation” reforms with the aim of reducing the state’s debt burden as soon as possible. However, the question remains—has the DMK actually taken the necessary steps to achieve these reforms? The answer seems to be no. The DMK, which came to power with promises of populist schemes without considering sustainable revenue generation, has only managed to increase the state’s debt. This has led to a situation where, in 2025, DMK Finance Minister, Thangam Thennarasu, had to admit that the state government did not have the funds to provide a ₹1,000 Pongal gift.

During his criticism of the Tamil Nadu Budget for 2020-21, following the speech by AIADMK Finance Minister O. Paneerselvam, PTR stated, “No one could have predicted that Tamil Nadu’s finances would reach such a critical point. By the end of this year, the total debt is expected to reach nearly ₹4.60 lakh crores, which equates to roughly ₹57,800 per person, including adults and minors. It is clear to me how we ended up in this situation, as I have been warning about it for the past four years. Our primary issue is that revenue as a percentage of GSDP has significantly decreased.” He explained that when comparing financial performance over time, or between states and countries, nominal figures such as rupees or dollars are not reliable indicators, mainly due to constant fluctuations in purchasing power and exchange rates. Inflation erodes the value of currency, making long-term comparisons based solely on nominal amounts meaningless.

Instead, he argued that the appropriate way to compare performance across time and regions is by using economic activity as a proportion of that period’s GDP or GSDP. PTR also highlighted that the state’s revenue had dropped by around 3.5% to 4% of its GSDP, a point he made in the 2017 Budget Debate. He referenced the Comptroller and Auditor General (CAG) report, which noted that the 14th Finance Commission had projected Tamil Nadu’s own tax revenue for 2017-18 to be Rs. 1,46,893 crores. However, the actual revenue collected was only Rs. 93,737 crores, a shortfall of Rs. 53,156 crores, or 36.19% less than projected. PTR pointed out that this shortfall amounted to 3.7% of the nominal GSDP for the year, consistent with the 3.5% to 4% revenue decline he had previously predicted.

While he acknowledged the validation of his earlier warnings, PTR expressed concern that the state government was not open to constructive criticism and may not be willing to acknowledge the financial issues at hand. Drawing a parallel to the central government’s approach, he criticized their supply-side economic concessions and tax reductions, which primarily benefited the affluent, rather than addressing the needs of the poorest segments of society. He urged the Tamil Nadu Finance Minister to avoid a similar denial of the state’s fiscal challenges and instead confront the problem directly.

In 2021, he said that till 2014 the revenue deficit never went beyond ₹3000 crores, blaming the post-Jayalalithaa AIADMK rule for financial mismanagement.

“I’m telling this irrespective of my politics. During the AIADMK rule of Jayalalithaa, DMK government and the AIADMK government before that, things were fine. Only after 2014, this problem came. Between 2004-14, revenue deficit never went beyond ₹3000 crores in any year. After legal and health problems started for Jayalalithaa, it has gone up to 8, 10, 12, 18, 20, 25, 30, 35,000 crores and today we’ve a never-before-seen revenue deficit.”, he said.

To address these issues, he stated that the DMK’s plan was to implement higher taxes on the wealthy rather than burdening the poor or middle class, advocating for a progressive tax system. Contrary to PTR, since the DMK came to power, it has been on a spree of raising property taxes, electricity tariffs, water taxes, and more, increasing the burden on citizens while sparing corporate entities.

Similarly, when PTR claimed that the AIADMK was responsible for the increase in debt, the RBI data presents a different picture. According to the RBI data, the debt-to-GDP ratio from 2006 to 2010 averaged 22.14 during the DMK regime. In contrast, under the AIADMK from 2011 to 2020, the average debt-to-GDP ratio was 21.13. However, once the DMK returned to power, the ratio surged to new heights, reaching 31.5 in 2021, 31.8 in 2022, and 32 in 2023. This clearly indicates that the DMK has become more reliant on loans rather than focusing on increasing revenue to meet its expenditure.

What Does Chief Minister MK Stalin Say? 

Instead of tackling the pressing issues at hand, Chief Minister MK Stalin recently held in-depth discussions with the Economic Advisory Council (EAC). During the meeting, Stalin took the opportunity to highlight and boast about the populist welfare schemes he claims have benefited the state’s residents. These initiatives included the monthly honorarium for women, the Pudhumai Pen scheme for female students, the Naan Mudhalvan scheme, the Chief Minister’s breakfast program for schoolchildren, free bus rides for women, Makkalai Thedi Maruthuvam, and Illam Thedi Kalvi, among others. He emphasized that, over the past four years, around 40 lakh people have secured employment through these programs. The CM concluded by saying, “Given this context, I look forward to your recommendations for advancing Tamil Nadu’s growth to the next level.”

While the CM lauded the positive impact of these welfare programs, one could argue that the implementation of such initiatives, aimed at aiding the underprivileged, comes at the cost of an increasing financial burden. Critics might contend that the DMK government has been borrowing heavily to fund these populist schemes, often with an eye on gaining political favor rather than solely addressing the state’s long-term fiscal health.

The debt-to-GDP ratio is a crucial economic indicator, offering insight into a country’s or state’s ability to manage its debt in relation to its overall economic output. For India, the national debt-to-GDP ratio provides a general understanding of the nation’s debt sustainability. However, this figure alone doesn’t fully reflect the financial status of individual states, where distinct fiscal strategies and borrowing patterns exist.

In this context, the debt-to-GDP ratio of Indian states becomes an important measure for assessing financial health, influencing credit ratings, fiscal policies, and budgetary decisions. The ratio is calculated by dividing a state’s total debt by its GDP, then multiplying by 100 to express it as a percentage. For instance, Tamil Nadu’s ratio stands at 26.4%, while Maharashtra and Gujarat have lower ratios of 18.4% and 15.3%, respectively. According to the Fiscal Responsibility and Budget Management (FRBM) Act, states are advised to maintain their debt-to-GDP ratio within a 20% threshold, a target that Tamil Nadu currently exceeds.

What Does The NCAER Report Say?

In its report titled “The State of the States: Federal Finance in India”, the NCAER analyzed the financial trends of 21 major states, which together represent approximately 96% of India’s population and 95% of its national GDP. The report highlights significant variation in the levels of debt and its increase from 2012-13 to 2022-23 among these states. With the exception of Gujarat, Odisha, West Bengal, and Maharashtra, debt ratios have risen in nearly all states during this period. About half of the states (11 in total) saw an increase of more than 10 percentage points in their debt-to-GSDP ratios over the past decade. States like Tamil Nadu and Kerala are among those that experienced a ‘High Increase in Debt.’

On average, states in this ‘High Increase in Debt’ category saw an 11.7 percentage point rise in their debt-to-GSDP ratio, with Punjab leading the pack, having seen a 15.6 percentage point increase. Five states, including Goa, Assam, Karnataka, Madhya Pradesh, and Uttarakhand, experienced more moderate increases, averaging 5.8 percentage points, and are classified as ‘Medium Increase in Debt’ states.

Meanwhile, the remaining five states—Maharashtra, Gujarat, Odisha, Uttar Pradesh, and West Bengal—demonstrated fiscal prudence, with debt ratios either decreasing or increasing minimally. This highlights the contrast between states like Tamil Nadu, which has faced a sharp increase in its debt, and states like Uttar Pradesh, which has been praised for its fiscal discipline. This report seems to have indirectly slapped Tamil Nadu and DMK leaders, who frequently cite Uttar Pradesh as a reference, boasting their fake achievements by pointing out how the state has managed its finances more prudently.

Comparing How AIADMK & DMK Regimes Borrowed 

Tamil Nadu’s outstanding debt and Debt-to-GDP ratio reflect a decline in financial efficiency under the DMK’s governance. During the 10-year ADMK rule from 2011 to May 2021, the figures remained relatively stable, with an average Debt-to-GDP ratio of 17.86%.

However, in the 4 years since the DMK took power (2021-2025), the debt-to-GDP ratio has risen significantly, from 21.83% to 25.93%. This represents an increase of 82.80% in total debt over this period. The average Debt-to-GDP ratio between 2021 and 2025 alone is 25.18% which is quite alarming.

Did The DMK Fail To Anticipate It?

In 2023, industrialists cautioned the Tamil Nadu government that its ongoing borrowing practices could potentially drive the state into a debt trap. Experts highlighted that if the government continues to rely on borrowing to repay previous debts, rather than focusing on infrastructure development, attracting real investments in manufacturing, curbing leakages, expanding the tax base, and boosting investor confidence, the state is at risk. “Is Tamil Nadu heading toward a debt trap? The answer is a definite yes,” stated Sriram Seshadri, Founder and Managing Partner of Disha Consulting and former Partner and Managing Director of Accenture India.

Seshadri pointed out that Tamil Nadu is borrowing not only to settle existing debt but also to cover revenue expenditures. The state’s interest payments now account for nearly one-third of its revenue, and the cost of borrowing continues to rise year after year. He criticized the state’s indiscriminate distribution of freebies and subsidies.

Dr. Gowri Ramachandran, Economist and Chairperson of the Expert Committee on Economic Affairs at the Hindustan Chamber of Commerce, echoed concerns, emphasizing that highlighted that Tamil Nadu’s debt burden is among the highest in India, with the state’s outstanding liabilities estimated at Rs 7.54 lakh crore by the end of March 2023. This is primarily due to State Development Loans (SDLs), which account for a large portion of the state’s total debt. By 2026, the outstanding debt is expected to increase to 25.9% of GSDP.

Despite Tamil Nadu’s industrial base, other states are becoming more successful in attracting such investments, and Tamil Nadu’s fluctuating political stance on industrial projects, such as its opposition to the Sterlite Copper plant and the Chennai-Salem Expressway, has led to a loss of investor confidence. In conclusion, experts assert that to avoid falling deeper into the debt trap, Tamil Nadu must prioritize infrastructure investment, target subsidies effectively, and reduce financial leakages.

A high debt-to-GDP ratio indicates that a state’s debt burden is significant in relation to its economic output, signaling financial vulnerability and limited fiscal flexibility. With large debt levels, the state faces higher interest payments, which can limit funding for essential services like healthcare and education. This situation can also raise concerns among investors and credit rating agencies, leading to higher borrowing costs.

States dealing with high debt levels encounter several issues:

  1. Budget limitations: The substantial interest payments on debt reduce available funds for crucial sectors such as education and healthcare.
  2. Decreased fiscal flexibility: Elevated debt levels restrict the state’s ability to respond to economic slowdowns or unforeseen crises.
  3. Investor confidence: A high debt burden undermines investor confidence, driving up borrowing costs and stalling economic growth.
  4. Credit rating impact: Elevated debt levels can trigger credit rating downgrades, which increase perceived financial risk and further strain finances.

To address these challenges, states must adopt measures like austerity policies, fiscal reforms, and strategies to reduce debt.

Subscribe to our channels on Telegram, WhatsApp, and Instagram and get the best stories of the day delivered to you personally.