Reclaiming Tamil Nadu’s fiscal sovereignty and sustaining its growth model

Published 22 June 2026 · politics

The Government of Tamil Nadu’s white paper is a comprehensive analysis of the State’s financial status and economic conditions. Detailed like the white paper prepared

The Government of Tamil Nadu’s white paper is a comprehensive analysis of the State’s financial status and economic conditions. Detailed like the white paper prepared by the DMK in 2021, the TVK’s 120-page document begins with an important line: ‘it is neither an exercise in retrospective blame nor a political statement’. In that spirit, this is a genuine exercise. It indeed offers an honest account of what went wrong with tax collection: a shrinking base and leakages embedded in both revenue collection and expenditure patterns. While its diagnosis is rigorous, what is not clear, however, is how the government is going to fix the leakages and manoeuvre the welfare that it has promised during its election campaign. The white paper lays bare the structural weaknesses facing Tamil Nadu’s economy and the possible course correction which in that sense has a lot more continuity with the earlier one submitted by the DMK. Both literally state that “the current levels of fiscal deficit are unsustainable primarily because a substantial portion of the fiscal deficit is simply to fund the revenue deficit”. It means the State is simply borrowing to fund current consumption rather than to create assets. To be sure, for every rupee borrowed about 60 paise goes to current consumption. But one has to be cautious of reading of too much of this as substantial expenditure for health and education are under the revenue account. In an economy, the government needs to raise resources to pay for the provision of public goods and services, build social and physical infrastructures needed for growth and protect the vulnerable from the market forces. In that sense, every policy is a political choice with losers and gainers not just within the present generation but also of across generations since public debt shifts the burden of payment to future governments. The white paper says that the State is deep in debt and its fiscal deficit is beyond the prescribed limit. On average, an individual ₹38,000 in all taxes to the State and the Union government and receives about ₹54,500 worth of subsidies and services.

The gap is typically funded by borrowing. The consolidated debt of each individual is then around ₹1.29 lakh, and the cumulative debt is about 28% of the State income, which is the cause for concern today. Collapse of revenue generation The serious concern that the report flags is not just debt but of the collapse of the revenue generation itself. While the white paper shows the account of revenue generation of the past five years, the collapse precedes this by at least a decade. Make no mistake, Tamil Nadu was one of the few States that predominantly sustained itself on its own revenue for its expenditure – about 70% of its expenditure from its own tax in sharp contrast to States such as Bihar and Uttar Pradesh which largely rely on the Centre’s transfer. With the introduction of the GST in 2017, States have lost their sovereignty on taxation. Tamil Nadu suffered the most. The State’s Own Tax Revenue (SOTR) to GSDP, which was 7.92% in 2011-12, has been steadily declining, and was down to 5.93% in 2021-22 and further down to 5.45% in 2025-26. While the white paper clearly shows that the decline is spread across all major tax heads — GST, petroleum VAT, State excise, stamp duty and motor vehicle tax, the GST alone accounts for about 53% total tax revenue. Despite having the second largest economy with the size of ₹35.29 lakh crore of GSDP, its GST collection was ₹72,008 crore lower than that of Karnataka (₹87,256 crore), and Gujarat (₹80,823 crore). Beside the systemic corruption and inefficiencies in tax collection, predominance of the service sector also contributed to the decline in GST collection. It appears many units within the sector are beyond the tax net. Similarly, motor vehicle tax collection has not kept pace since the number of vehicles registered in the State has not kept up. Not to mention stamp duties in rent-seeking sectors such as real estate which is known for undervaluation of the property at registration and excessive leakages and corruption.