Tamil Nadu interim budget: Done with doles, govt walks tightrope to polls

CHENNAI: Tamil Nadu finance minister Thangam Thennarasu straddled hope and reality on Tuesday when he presented the interim budget for 2026–27, acknowledging mounting debt and deficit, while promising to rein them in and continue welfare schemes.

His 142-minute budget speech ahead of the assembly election mentioned no new populist scheme. The finance minister highlighted the widening revenue deficit and fiscal deficit in the revised estimates (RE) for 2025–26, driven by a shortfall in revenue receipts and a rise in overall expenditure.


Fiscal deficit increased from the estimated Rs 1,06,963 crore to Rs 1,24,007 crore, and is now estimated at 3.48% of GSDP, up from 3% initially budgeted. The minister said the deficit would be brought back to 3% of GSDP in 2026–27, provided no fresh pressures emerge.

Revenue deficit for 2025–26 has been revised to Rs 69,219 crore from Rs 41,635 crore projected in the previous budget estimates (BE). The reasons: GST rate cuts, withholding of funds under Centre-sponsored schemes, and higher expenditure commitments. Loss compensation to Tamil Nadu Power Distribution Corporation Ltd (TNPDCL) and mandatory transfers to the Guarantee Redemption Fund (GRF), as required by the Centre, added to the stress.

Capital expenditure has also moderated, signalling pressure on resources. Recent doles such as Rs 3,000 per family for Pongal and Rs 5,000 to beneficiaries of the Kalaignar Mahalir Urimai Thittam had cost the exchequer Rs 10,849 crore. Revenue expenditure rose to Rs 3,78,917 crore in the 2025–26 RE from Rs 3,73,204 crore in the BE — a contained increase of Rs 5,713 crore, aided by savings in non-developmental spending — and is projected to grow 3.79% to Rs 3,93,272 crore in 2026–27.

Debt levels have edged higher, with outstanding liabilities estimated at Rs 9,52,374 crore in the 2025–26 RE, compared with Rs 9,29,959 crore in the BE. Of this, Rs 9,523 crore relates to the Chennai Metro Rail Phase II project, approved as a central sector project, and is expected to be adjusted to the Union government’s accounts — temporarily inflating the state’s debt. For 2026–27, the interim budget estimates project the outstanding debt at Rs10,62,248 crore.

Thennarasu attributed much of the fiscal strain to external factors, particularly decisions by the Union government that, he said, have exacerbated pressure on Tamil Nadu’s finances. Without these challenges, he argued, the revenue deficit could have been maintained in line with the budget estimates.

Echoing this view, Devendra Kumar Pant, chief economist and head of public finance at India Ratings & Research, told TOI: “Tamil Nadu’s interim budget should be assessed on the FY26 performance rather than FY27 proposals, especially since the state will soon face elections. The post-election budget should instead be evaluated from the perspective of developmental needs and the government’s reform agenda. The broad revenue components — state’s own tax revenue, state’s own non-tax revenue, share in central taxes, and grants — reflect the overall trend of a tax slowdown, particularly after GST rationalisation. TN, being an industrial state, is likely to see 13.7% lower GST collections in FY26 (RE) compared with FY26 (BE).”

While allocations for key welfare programmes have been stepped up in the runup to the election, the finance minister reiterated the state’s commitment to returning to a fiscal consolidation path in the coming year.