Three political parties in Tamil Nadu have released their manifestos. The debt levels seem set to be self-spiralling even under optimistic assumptions.
The main impact is from the ‘monthly assistance’ to women which can claim ₹54,000 crore — 16.28 per cent of TN’s revenue receipts of 2025-26, if one strictly follows the language of the manifestos. The yearly of all promises by DMK and AIADMK come to ₹48,500-51,000 crore if we limit all women-focused give outs to only those who are already receiving the ₹1,000 assistance, despite several complaints of unfair exclusion but including the additional days under VBGRAMG ).
If all are enrolled this figure balloons to about ₹64,000 crore a year in both cases. One time appliance related payout is ₹18,000 crore and ₹29,700 crore.
Fiscal impact
The table analyses Tamil Nadu’s financial health in the backdrop of the subsidies promised by the rival political combines. The State’s nominal GSDP is projected to grow at its last three years average (real) plus 4 per cent inflation which is the target set for RBI, i.e. 12.87 per cent. The borrowing for financing the incremental deficit is taken at the going yields for TN securities (7.76 per cent). GSDP is assumed to grow at Nominal terms while subsidies have been frozen at same levels throughout.
The 16th Finance Commission has advised a limit of 3 per cent fiscal deficit. At the peak it is 4.94 per cent for DMK and 5.94 per cent for AIADMK.
What is alarming is the persistence of growth of debt-GSDP ratio over the 30 per cent considered the danger mark at the State level. The proposed subsidies may violate almost all prudential norms – RBI’s regarding borrowing limits, Finance Commission norms, FRBMs and Supreme Court’s ‘observations’ and ‘advice’ regarding provisions and disclosure of sources. Surely Tamil Nadu’s credit rating is bound to take a hard hit.
The 8th Pay Commission when implemented would further worsen the situation.
Development hit
The biggest casualty is the abandoning of the developmental path relentlessly pursued by Tamil Nadu. While free markets won’t alone solve all society’s economic problems, subsidies should also not be designed to kill or dilute private initiative.
Subsidies should be limited to merit goods. Education and healthcare are prime examples. Free gas and appliances can in no way be called a merit goods.
As documented in several studies, full loan write-offs have adverse behavioural impact and encourage future defaults. The state could at best, shoulder a part of the debt burden, leaving the balance to be paid by the beneficiaries.
Even these should be based on defined stresses and shocks, which will largely preserve private optimisation instinct to play its role.
It would be desirable if the fiscal deficit goes largely towards capital expenditure and capacity creation instead of filling revenue deficit. Sadly, there is not much talk on employment but only assistance. The most appropriate way would be to accelerate development projects, create employment opportunities, and control unemployment to enhance incomes. That requires massive training and capacity building and creation of infrastructure to make India cost competitive.
If this is the situation in Tamil Nadu — one of the better performing States, one wonders what the situation would be if all other States start imitating TN. Surely some serious legislative or judicial clamp downs seem necessary to preserve States’ fiscal health.
The writer is the author of Making Growth Happen in India
Published on April 7, 2026