TN Budget: Can TN continue welfare schemes amid rising debt and Centre's cold-shoulder?

Tamil Nadu’s first-ever economic survey projects maintaining a growth rate of over 8% in 2024-25, outpacing the national average. However, Tamil Nadu's commitment to social welfare also imposes significant financial burdens on the state exchequer. With the Centre's allocation coming down over the years and its debt burden increasing, the question remains whether the state can continue its social welfare schemes.

Growing debt

Opposition parties in the state, especially the BJP, have frequently mentioned Tamil Nadu’s growing debt, emphasising that it is nearing ₹9 lakh crore and would translate to each household carrying a debt load of ₹3 lakh.

Tamil Nadu, contributing 9.21% to India's GDP with a Gross State Domestic Product (GSDP) of ₹27.22 lakh crore in 2023-24, continues to leverage its robust infrastructure, skilled workforce, and industrial strength. The state's per capita income stands at ₹2.78 lakh, nearly 1.6 times the national average.

According to the economic survey report released by the Tamil Nadu government, Tamil Nadu's industrial leadership, ranking first in automobile, textile, and leather exports and with a strong presence in IT and electronics, will improve its income in the forthcoming years. The report also points out that the state government has attracted investments worth ₹6.64 lakh crore through the Global Investors Meet 2024 and is set to generate 14.55 lakh jobs.

But how will the state, with its heavy debt burden, meet its bills for social welfare schemes? Will it be forced to withdraw some schemes or reduce its spending on welfare programs?

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Ahead of the state budget, The Federal spoke to economist K Prabhakar, an Oxford Scholar and head of the Centre for Social Initiatives and Management Research Firm, to get clarity. For the record, Prabhakar has been analysing Tamil Nadu's budget reports for over a decade.

High debts

Asked about Opposition parties like AIADMK and BJP accusing the DMK government of leading the state into financial distress with high debts, he said, *"The debt burden of the state remains within prescribed levels based on official data mentioned in the 15th Finance Commission report."

In fact, Tamil Nadu Finance Minister Thangam Thennarasu also mentioned that the debt burden would not be a worrisome issue in his recent interviews. He also accused the Union government of causing the state’s financial strain by reducing tax devolution and limiting Tamil Nadu’s revenue inflows.

Strong economic base

On the challenges of meeting the bills for social welfare schemes, Prabhakar said, "Tamil Nadu doesn’t depend fully on the allocation from the Union government. Money for the state comes mainly from the service sector (54 per cent), manufacturing sector (33 per cent), and agriculture sector (13 per cent). Funds from the Centre would be a support system, but it would not act as a main financial instrument. In the service sector – IT services and allied industries, Global Capacity Centres are giving good returns. Since Tamil Nadu contributes approximately 30% to India's automobile industry and 35% to its auto components sector, Chennai alone accounts for 60% of the country's automotive exports."

He further stated, "On the agricultural front, Tamil Nadu remains a top producer in oilseeds, groundnut, and sugarcane. At the same time, the state is also urbanized in a big way, which would gradually divert agricultural labourers into the urban labour market in various gig jobs."

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Social indicators show progress

"Social indicators also show progress, with the state ranking high in education, healthcare, and poverty reduction. The literacy rate and enrolment ratios remain among the highest in India, supported by welfare schemes such as the Chief Minister’s Breakfast Scheme, Pudhumai Pen, Nan Mudhalvan, and many others. The dropout rate of Tamil Nadu students is 0.4 percent. So, the spending on social welfare schemes would not be a problem for the state," he explained.

He said Tamil Nadu would not be forced to stop any of its social welfare schemes as the government would be able to maintain its growth.

Rising social spending and economic resilience

The Tamil Nadu Economic Survey 2024-25 has highlighted that the Tamil Nadu government has steadily increased its social sector expenditure, which rose from ₹79,859 crore in 2019-20 to ₹1.16 lakh crore in 2023-24.

Key initiatives include the Chief Minister’s Breakfast Scheme to improve school attendance and nutrition as well as various programs empowering women, such as the Kalaignar Mahalir Urimai Thittam and the Mahalir Vidiyal Payanam Thittam.

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Between 2005-06 and 2022-23, Tamil Nadu’s poverty rate (Headcount Ratio) decreased significantly, from 36.54% to just 1.43%, while India’s HCR declined from 55.34% to 11.28%. In 2023-24, Tamil Nadu ranked fourth among major states in terms of average monthly per capita consumption expenditure for both rural and urban areas, consistent with its position as the fourth highest in annual per capita income the state's remarkable economic resilience despite global disruptions, including geopolitical tensions, extreme weather events, and supply chain disruptions.

Balancing welfare and fiscal management

Earlier, Minister Thangam Thennarasu said the state government has introduced numerous welfare schemes, such as Vidiyal Payanam (costless bus travel for women), Kalaignar Magalir Urimai Thogai, and Pudhumai Pen, which have significantly benefited women and involved substantial financial outlay. However, while implementing these schemes for the welfare of the people, the government is also ensuring prudent fiscal management.

"We have been making concerted efforts to ensure sound growth in revenues across all sectors, be it GST, stamps and registration, motor vehicle taxes, etc. We have also introduced the Tamil Nadu Public Fund Tracking System to ensure a just-in-time fund release for schemes. This is helping us save on interest costs through efficient cash and debt management," he told the media.

He also added that the State’s Own Tax Revenue has grown due to a strong performance in the Goods and Services Tax (GST) segment. It is supported by higher settlements from Integrated Goods and Services Tax (IGST).

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Analysts said that apart from GST, rate revisions in the Tamil Nadu State Marketing Corporation Limited (TASMAC), the state-run liquor company, and motor vehicle taxes boosted the state’s financial inflows.