TN Budget: Economist slams AIADMK's debt trap claim, praises welfare schemes

The unveiling of Tamil Nadu’s 2025-26 budget has sparked off discussions on the state's economic strength, welfare policies, and future growth.

Economist K Prabhakar, in an exclusive interview with The Federal, provided an in-depth analysis of the state's financial position, the impact of its social schemes, and comparisons with other states.

Tamil Nadu’s economic standing

Tamil Nadu continues to be a key contributor to India's economy. The state's own tax revenue is projected to grow by 14.6 per cent, while India’s GDP growth rate is pegged at 6.5 per cent.

Comparing Tamil Nadu’s GDP with other states, Prabhakar noted that the state’s economy is larger than that of Uttar Pradesh and Bihar combined.

Breaking down Tamil Nadu’s economy, he said:

Agriculture contributes 13 per cent of the state GDP

Manufacturing accounts for 33 per cent

Services dominate with 54 per cent

This economic diversity sets Tamil Nadu apart from many states, ensuring steady growth despite national economic fluctuations.

Also read: TN Budget 2025 tries to negotiate choppy fiscal waters amid dwindling Central funds

Welfare schemes and per capita income

Tamil Nadu has one of the highest per capita incomes in India, standing at ₹3,15,000, closely following Goa and Delhi. The poorest in Tamil Nadu earn ₹1,36,000 annually—much higher than the national average of ₹53,000. Prabhakar attributes this to the state’s extensive welfare programmes.

"The richest in Tamil Nadu earn ₹6,29,000 annually, while the poorest earn ₹1,36,000. Welfare schemes bridge this gap by improving access to education, healthcare, and social security," he explained.

Schemes like free bus travel for women, financial support for students, and maternity benefits are designed to boost overall economic participation, ensuring that resources reach those who need them most.

Also read: TN Budget 2025 promises Anbucholai homes for elderly, enhanced security for women

Are welfare schemes sustainable?

A common concern is whether Tamil Nadu can afford its large-scale welfare programmes, especially with the Union government allegedly withholding funds. Prabhakar argues that these schemes should be seen as investments rather than expenses.

He cited Nobel laureate James Heckman’s research, which found that spending 1 per cent of GDP on nutrition programmes can increase productivity by 14 per cent. He explained:

Free transportation for women allows them to access hospitals, reducing long-term healthcare costs.

The noon meal and breakfast schemes ensure children receive proper nutrition, improving their cognitive abilities and future productivity.

"These policies ensure long-term economic benefits, similar to how America provides free meals to students as a social investment," he added.

Debt and financial sustainability

Despite concerns, Tamil Nadu's debt-to-GDP ratio remains within safe limits. The state relies on its own resources for 74 per cent of its budget, with only 20-22 per cent coming from the Union government.

In comparison

Punjab has borrowed 47 per cent of its budget

Bihar has borrowed 46 per cent

Tamil Nadu’s borrowing remains at 26 per cent, well below the RBI's 28 per cent limit

With a fiscal deficit of ₹41,000 crore, the state has managed to keep its borrowings in check while continuing social spending.

Education and employment migration

Tamil Nadu’s focus on education plays a crucial role in shaping its workforce. The state is spending ₹46,000 crore on education, ensuring opportunities from primary schooling to higher education.

This emphasis on education also affects migration patterns. Prabhakar highlighted how South Indian migrants move abroad through skilled employment routes, unlike those from Gujarat, Punjab, and Haryana, where many take illegal migration routes (often referred to as the "donkey route").

South Indian students secure H1B visas for high-skilled jobs in tech and engineering.

Many from Gujarat and Punjab migrate for low-skilled jobs in motels and small businesses run by their community networks in the US.

"Migrants from Tamil Nadu, Karnataka, and Kerala prefer legal routes through education. In contrast, those from certain northern states rely on family-run businesses abroad, leading to higher illegal migration," Prabhakar observed.

Tamil Nadu’s budget underscores its strong economic foundation and commitment to welfare policies.

Despite reduced Union funding, the state has sustained social programmes without exceeding borrowing limits. Prabhakar’s analysis suggests that Tamil Nadu’s approach to welfare is an investment in long-term growth, ensuring better living standards and economic participation.

The debate on balancing welfare with fiscal sustainability will continue, but Tamil Nadu's model demonstrates that strategic social spending can drive economic resilience.

The content above has been generated using a fine-tuned AI model. To ensure accuracy, quality, and editorial integrity, we employ a Human-In-The-Loop (HITL) process. While AI assists in creating the initial draft, our experienced editorial team carefully reviews, edits, and refines the content before publication. At The Federal, we combine the efficiency of AI with the expertise of human editors to deliver reliable and insightful journalism.