Tamil Nadu News

Sustainable debt-GSDP ratio for Tamil Nadu

September 7 , 2026 15 hrs 0 min 28 0

The sustainable level of the debt-gross state domestic product (GSDP) ratio for the State is 23%.
There is a demand for the reduction of the level from the existing 27%.
The Fiscal Responsibility and Budget Management (FRBM) Committee headed by former civil servant N.K. Singh, in its report prepared in 2017, prescribed 20% as the prudent limit for the States in general.
An allowance of an additional three percentage points can be provided for Tamil Nadu, considering the progress of macroeconomic factors in the last five-odd years.
Emphasising that borrowing, per se, is not an undesirable activity, it is one of the major sources of financing development projects.
When borrowed funds are invested in productive assets and infrastructure that generate economic growth and future income, the government will be able to service its debt with increased income.
However, when the debt-GSDP ratio exceeds the prudent level, it becomes unsustainable, and the burden of debt servicing becomes excessive for the future,
It is crowding out productive expenditure and pushing the government into a debt trap.
The debt trap is a situation that is “bad for growth, development and stability.
The debt issue is widespread in the country and not confined only to Tamil Nadu.
Only three States – Gujarat, Odisha, and Maharashtra – have debt-GSDP ratios below the 20% mark.
While all others have crossed the threshold, nine States – Andhra Pradesh, Bihar, Kerala, Madhya Pradesh, Punjab, Rajasthan, Telangana, Uttar Pradesh, and West Bengal – have higher ratios than that of Tamil Nadu.
Like in most other States, the debt-GSDP ratio in Tamil Nadu shot up in the COVID-19 pandemic year (2020-21), from which it has not been able to stage a comeback.
In 2019-20, it was 22.78%.
The next year, it rose to 28.67%.
It has been hovering in the range of 28% to 26% since then.
Though appreciative of Tamil Nadu for being able to keep its fiscal deficit at 3% of the GSDP, the revenue deficit (the excess of revenue expenditure over revenue receipts) is about 1.4% of the GSDP.
It means that nearly 50% of the borrowed money is spent on consumption and not on investment.
To reach the sustainable level of a debt-GSDP ratio of 23% around 2050-51, the State should achieve 15% nominal economic growth annually and keep the fiscal deficit at 3%.
If it wants to attain the level faster, it should, at least, reduce the fiscal deficit.
For example, assuming the State is able to keep the fiscal deficit at 2.5% with 14% nominal economic growth, it can reach 23% by 2033-34.
By strongly advocating expenditure rationalisation, the government should not hesitate to drop outdated and unproductive welfare schemes.