TN’s fiscal tightrope

The new Tamil Nadu govt, led by C Joseph Vijay, riding on an ambitious promise to transform the state into a $1.5 trillion economy by 2036, faces challenges ranging from global shocks that threaten manufacturing and consumption to growing strain on the exchequer from fiscal profligacy. Experts pointed out that the larger concern lies not in debt stock, but in the state's weakening revenue mobilisation capacity. "Tamil Nadu's economy is growing in double digits, but state revenues, especially the state's own tax revenues (SOTR) are not rising proportionately. This points to leakages and weak tax-collection efficiency. While this mismatch is visible across the country, a microscopic review of public finances is essential to plug leakages and identify potential new revenue streams," says M Suresh Babu, director of Madras Institute of Development Studies (MIDS).He also urged the state govt to work with the Union govt to better tap central schemes and funds, rather than engaging in constant confrontation. Babu also suggested the govt look at debt restructuring. "Since the state has limited flexibility in spending because committed expenditures such as salaries, pensions, and interest payments are large, the focus should shift toward restructuring existing debt to lower interest costs. "Reforming and restructuring loss-making state power and transport PSUs is also critical to reduce ongoing fiscal drag. The govt should also consider PPP models in PSU while ensuring workers' welfare," Babu added.Prof N R Bhanumurthy, director of the Madras School of Economics (MSE) reiterated that the govt must also focus on the financial health of public sector units, while adding that eliminating duplication across welfare programs. "There must be a strong emphasis on expenditure rationalisation. The govt should avoid layering new cash transfer schemes on top of existing ones without comprehensive restructuring. Otherwise, budgets will become unsustainable, and benefit distribution will remain uneven," he said.Both economists stressed that welfare schemes need to be better targeted to remain fiscally sustainable over the long term.Amid the fiscal pressures, TN continues to rely heavily on two major revenue generators — liquor sales through state-run TASMAC and property registrations. The two depts together contributed more than `75,000 crore in 2025-26, with TASMAC alone generating nearly `50,000 crore and the registration department contributing about `25,500 crore. This comes even as the state govt recently announced the closure of 717 TASMAC liquor outlets.However, past trends indicate that liquor revenues have remained resilient despite a reduction in the number of retail outlets. An analysis by TOI found that liquor sales rose nearly eight-fold over 15 years despite a 20% decline in the number of TASMAC outlets between 2006 and 2021. A white paper released by the DMK government in 2021 showed that liquor sales through TASMAC surged from `4,195 crore in 2006-07 to `33,746 crore in 2020-21, even as 1,311 liquor shops were shut during the period. While the average rise in the sale of liquor was 20%, the year-on-year (YoY) jump ranged from two per cent to 120% in some years in the 15-year period. A Mohan, former chief auditor in state finance department, estimated that shutting 717 TASMAC outlets could result in an annual revenue loss of around `15,000 crore."To compensate for the losses, the government may have to increase excise duty and VAT. Expanding Elite outlets that sell premium and imported liquor could also become an option," he said. Mohan also suggested that Tamil Nadu could explore online liquor sales as an additional revenue avenue.The registration department, meanwhile, is seen as another area with significant untapped potential. Official sources said Tamil Nadu has not undertaken a comprehensive revision of guideline values for property registrations in over 12 years, unlike states such as Karnataka, Andhra Pradesh, and Telangana, which have revised them multiple times during the period. "Executing a full revision of guideline values could significantly increase revenues from property registrations," a senior official from the department said, estimating that collections could rise by at least 30%.