Days after taking oath as the Chief Minister of Tamil Nadu, Vijay has announced that his government will soon release a White Paper on the state’s finances, claiming that the previous DMK administration left the treasury under severe pressure with debt nearing ₹10 lakh crore.
ALSO READAIADMK turmoil grows after Tamil Nadu poll setback, some MLAs seek Palaniswami’s exit: Report
The announcement has reopened the debate around Tamil Nadu’s fiscal health, welfare spending and rising liabilities, especially after Vijay simultaneously unveiled a major welfare promise of 200 units of free electricity every two months for domestic consumers.
According to the state Energy Department, the scheme is expected to cost the government around ₹1,730 crore annually.
The move immediately drew a sharp response from former Chief Minister M K Stalin, who rejected suggestions that the DMK had emptied the state treasury.
“You, who came to power saying, ‘I will only give promises that are practically feasible,’ are now just stepping into government administration. I believe that, just like us, you too will surely learn soon the nuances of how to fulfil the promises made to the people,” Stalin wrote in a social media post.
Tamil Nadu carries India’s highest state debt burden
Tamil Nadu’s financial situation has remained under discussion for years. Back in 2021, shortly after the DMK came to power, then Finance Minister P Thiaga Rajan had released a White Paper describing the state’s finances as “dire” and warning that there were “no buffers left” after a decade of AIADMK rule.
Latest Reserve Bank of India data now shows Tamil Nadu’s outstanding liabilities touching ₹9.56 lakh crore by the end of FY25, the highest among all Indian states.
At the same time, the state has also remained one of India’s fastest-growing economies. Tamil Nadu recorded a real growth rate of 10.8% in FY26 after growing 11.2% in FY25 under the old GDP series.
Economists point out that faster-growing states generally have greater capacity to handle debt repayment. Tamil Nadu’s debt-to-GSDP ratio, while high, has gradually declined over the past three years after rising sharply during the Covid-19 pandemic period.
The 16th Finance Commission also noted that Tamil Nadu’s debt burden has steadily increased over the past decade, moving from one of the lowest debt ratios among major states in FY12 to above 30% after the pandemic.
Welfare promises may further strain finances
One of the biggest concerns for the new government is the state’s growing committed expenditure — expenses such as salaries, pensions and interest payments that must be paid every year.
According to a 2025 report by PRS Legislative Research, Tamil Nadu plans to spend nearly 62% of its revenue receipts on salaries, pensions and interest payments in FY26, leaving less room for development sectors like healthcare and education.
In addition, subsidies are already placing heavy pressure on the state budget. Tamil Nadu had allocated over ₹72,000 crore for subsidies in 2025-26, while capital expenditure targets reportedly fell short.
Vijay’s larger welfare agenda could further increase this burden. His party manifesto includes promises such as monthly financial assistance for women heads of households, free LPG cylinders and unemployment support for graduates.
Reports suggest that implementing all these promises could push annual welfare expenditure close to ₹1 lakh crore, significantly higher than the previous DMK government’s welfare spending.
ALSO READSuvendu Adhikari’s first Cabinet meeting: Bengal govt approves Ayushman Bharat, speeds up Bangladesh border fencing
Experts also warn that Tamil Nadu’s ageing population may create additional financial pressure in the coming years. The RBI has projected that Tamil Nadu could soon enter the “ageing state” category, where more than 15% of the population is above 60 years of age.
“Ageing states are facing high old-age dependency ratios and rising social sector expenditure obligations,” the RBI had said, warning that states like Tamil Nadu would need long-term fiscal planning to maintain financial stability.
</p> |
