SFAR Tamil Nadu 2024-25
State Finances Audit Report
Government of Tamil Nadu
This chapter provides a snapshot of Tamil Nadu's finances for 2024-25, covering demographics, economic indicators and the State's fiscal structure. It analyses trends in revenue and expenditure, debt levels, and fiscal deficits, highlighting persistent imbalances and reliance on borrowings. It also flags issues like high committed expenditure and low returns on investments.
Tamil Nadu, with a geographical area of 1,30,060 Sq. km is the 11th largest State in India. It comprises of 38 Districts and 313 Taluks. As per the census 2011, the State's population was 7.21 crore, making it the seventh largest State in terms of population. As per population projections for India and States 2011-2036 by the National Commission on Population, Ministry of Health & Family Welfare, the projected population of the State in 2024-25 stands at 7.73 crore.
The State's demographic details vis-à-vis national average are presented inTable 1.1 below
Gross State Domestic Product (GSDP) and per capita income (PCI) are important indicators of the State's economy as discussed in the succeeding paragraphs.
Gross Domestic Product (GDP) refers to the total value of goods and services produced within a country, while GSDP measures the same at the State level, and both reflect economic development and overall progress. Trends of GSDP and GDP is given in Table 1.2. Year on year growth (Y-o-Y) of GSDP and GDP and GSDP contribution in GDP is given in Chart 1.1 and per capita income (PCI) of the country and per capita income (PCI) of the State is depicted in Chart 1.2
The growth rate of GSDP (15.98 per cent) was significantly higher than the growth rate of GDP (9.78 per cent). From Chart 1.1, it can be seen that the decadal growth rate of GSDP was more than the GDP except for the years 2015-16, 2016-17 and 2021-22. The State share in National GDP was more than 8 per cent during the decade reaching a high of 9.43 per cent during the year 2024-25.
From Chart 1.2, it may be seen that the State's PCI was consistently and significantly higher than the National average during the period 2015-16 to 2024-25.
The sectoral contribution by various sectors during 2024-25 and sectoral growth in Gross State Value Added (GSVA) during the last 10 years are depicted in Chart 1.3 and Chart 1.4 respectively.
The contribution of the Secondary and Tertiary sectors exhibited fluctuations during the decade 2015-16 to 2024-25, whereas the Primary sector's share remained broadly stable from 2020-21 onwards. Compared to the previous year, the output of the Primary sector increased by 13.41 per cent, the Secondary sector by 17.72 per cent and the Tertiary sector by 17.45 per cent.
Chart 1.5 shows the composition of each sector during financial year (FY) 2024-25, in terms of its major contributing segments.
The Tertiary Sector, the largest contributor to the State's GSVA, recorded a growth of 17.45 per cent during the year. Within this sector, Real estate, ownership of dwellings and professional services remained the main contributors, registering a growth of 17.87 per cent over the previous year. This was followed by Trade, repair, hotels and restaurants, the second-largest contributor within the sector, which grew by 18.28 per cent.
The Secondary Sector, the second-largest contributor to GSVA, continued to be led by Manufacturing, followed by Construction. Manufacturing registered a growth of 16.42 per cent, while Construction grew by 17.33 per cent during the year.
In the Primary Sector, Crops and Livestock, the main contributors, recorded growth rates of 15.71 per cent and 9.75 per cent respectively compared to the previous year. Fishing and aquaculture as well as Mining and quarrying also exhibited an increasing trend during the year.
Table 1.3 shows the details of actual financial results of the State for the years 2023-24 and 2024-25 vis-a-vis Budget Estimates (BE), Revised Estimates (RE) and GSDP for the year 2024-25.
The variation between the Budget Estimates/Revised Estimates and Actuals under revenue receipts was largely attributable to lower realisation under Own Tax Revenue, mainly under State Goods and Services Tax (SGST) (0005) and Taxes on Sales, Trade, etc. (0040), reduced receipts under Grants-in-Aid from the Government of India particularly under MGNREGA and lower recovery of Loans and Advances under capital receipts. However, the actual receipt of the State's share of Union Taxes and Duties was broadly in line with the Revised Estimates.
Under Capital Receipts, no amount was realised against the Budget Estimate of ₹1,177 crore under the head of account "6215 - Loans for Water Supply and Sanitation", towards recovery of loans extended by the Government during 2024-25. During the Exit Conference held on 08 January 2026, the department stated that the recovery would be effected along with penal interest.
The details of State Government Finances for the FY 2015-16 to 2024-25 are given in Appendix 1.1
Comparison of components of the sources and application of funds of the State during the current year is given in Chart 1.6.
Appendix 1.2 provides details of receipts and disbursements and the overall fiscal position of the State during the current year as well as the previous year.
Government accounts capture the financial liabilities of the Government and the assets created out of the expenditure incurred. Appendix 1.3 gives an abstract of such liabilities and assets, as on 31 March 2025, compared with the corresponding position of the previous year. The liabilities consist mainly of internal borrowings, loans and advances from GoI, receipts from the Public Account and Reserve Funds. Assets comprise mainly of Capital Expenditure, and loans and advances given by the State Government and cash balances. A summarised position of assets and liabilities, for the financial years 2023-24 and 2024-25, is given in Table 1.4.
During the year, Loans and Advances disbursed by the State government increased by 16.90 per cent over the previous year. The major portion of the Loans and Advances disbursed were utilised towards Social Services (58.62 per cent) and Economic Services (39.67 per cent), reflecting the State's prioritization of welfare-oriented programmes and growth-supporting activities.
All revenues received by the State Government, all loans raised by the State Government, ways and means advances extended by the Reserve Bank of India and all money received by the State Government in repayment of loans form part of the Consolidated fund of the State.
Trends and growth of Tamil Nadu's revenue receipts with respect to GSDP over the 10 years period (2015-16 to 2024-25) are shown in Table 1.5.
Revenue Receipts continued to grow (6.89 per cent) but not as fast as the State's economy (15.98 per cent). The State relied mainly on its own tax and non-tax revenues, showing financial strength despite decreased grants from GoI.
The Buoyancy ratio for State Own Tax Revenue with respect to GSDP for the year 2024-25 stood at 0.48. This value, being below one, indicates that State's Own Tax Revenue grew at a slower pace than the growth in GSDP during the year.
Revenue Receipts as a percentage of GSDP and contribution from various sources in revenue receipts is given in Chart 1.7 and Chart 1.8 respectively.
As seen from Chart 1.7, the ratio of Revenue Receipts to GSDP declined during the last two years, 2023-24 and 2024-25, primarily due to a reduction in Grants-in-Aid received from the Government of India.
Chart 1.8 indicates that over the decade, the State's share in Union taxes and duties ranged between 14 and 19 per cent. The increase in the State's share during 2024-25 was mainly attributable to higher devolution from the net proceeds of Central Goods and Services Tax (CGST), Taxes on Income other than Corporation Tax and Customs Duties.
Own Tax Revenue is the revenue collected by the State Government through taxes it is empowered to levy under the Constitution of India. Actuals for FY 2023-24, Budget Estimate (BE), Revised Estimate (RE), and actuals of Own Tax Revenue for the FY 2024-25 is given in Table 1.6.
Though the annual growth rate of own tax revenue increased by 7.74 per cent, the actual collections were lower than both Budget Estimate and Revised Estimate. Further, there was significant decrease of 52.69 per cent under Taxes and duties on Electricity compared to the previous year's actuals.
Trends of own tax revenue and its components during the period 2015-16 to 2024-25 are shown in Chart 1.10 and Chart 1.11 respectively.
The State's Own Tax Revenue constituted 64 per cent of the total revenue receipts during the year. When compared with the all-States (excluding UTs) average ratio of Own Tax Revenue to GSDP of 6.14 per cent during 2024-25, the State's corresponding ratio stood at 5.78 per cent.
During the year, the annual growth rate of Own Tax Revenue at 7.74 per cent was mainly attributable to an increase in receipts under apportionment of Integrated Goods and Services Tax (IGST) amounting to ₹5,155 crore (transfer-in tax component) and the tax component under SGST, which increased by ₹4,350 crore. The increased receipts in SGST and IGST settlement during the year 2024-25 is due to economic and market factors such as inflation, GSDP and increased consumption. Taxes on vehicles also increased by ₹1,558 crore due to the revision of taxes under the State Motor Vehicle Taxation Act.
Further, receipts under Taxes on Sales, Trade, etc. increased by ₹2,137 crore, mainly on account of higher collections from the sale of Indian Made Foreign Liquor (IMFL) and beer, which rose by ₹2,039 crore as well as revenue from Petrol, Diesel, ATF, CNG and Petroleum Crude. This increase was attributable to price increase in Alcohol with effect from February 2024 and the higher taxable turnover of goods by way of quantity supplied and consumed during the year.
Under the Major Head "0030 - Stamps and Registration Fees", although receipts under the Minor Head "103 - Duty on Impressing of Documents" increased by ₹4,157 crore, this was partly offset by a decrease of ₹1,181 crore under "104 - Fees for Registering Documents" during the year. In reply, the Department of Registration stated that the reduction in rate of Registration Fees from 4 per cent to 2 per cent without an increase in the market value guideline has led to a decrease in the collection of Registration Fees during 2024-25.
Collections from State Excise and Land Revenue remained stable over the last three years. However, compared to the previous year, receipts under Taxes and Duties on Electricity declined sharply by ₹2,993 crore, mainly because electricity tax arrears of ₹5,880.21 crore for the period August 2020 (part) to February 2024 (part) were remitted by Tamil Nadu Power Distribution Corporation Limited (TNPDCL) in 2023-24, while only ₹2,576.89 crore relating to the remaining period (February 2024-March 2025) was remitted during the current year.
The increase in receipts under Tertiary and Secondary sectors like Taxes on sales, trade, stamps and registrations, vehicle tax, SGST and IGST contributed to the growth of GSDP in the respective sectors.
Non-tax Revenue of a State refers to the rent, fees, royalties and other receipts, of the State Government from sources other than taxes.
Actuals for FY 2023-24, Budget Estimate (BE), Revised Estimate (RE), and Actuals of Non-tax Revenue for the FY 2024-25 is given in Table 1.7
During the year, total Non-tax Revenue increased by ₹7,699 crore (29.72 per cent) over the previous year, mainly on account of an increase of ₹10,919 crore in interest receipts. The rise in interest receipts was largely attributable to the accounting of interest on Defined Contributory Pension Scheme (DCPS) deposits with the Life Insurance Corporation of India for the years 2022-23, 2023-24 and 2024-25, which was recognised as receipts during 2024-25. The amount so recognised was subsequently credited back to the DCPS fund account and reinvested, resulting in a one-time increase in interest receipts during the year.
In addition, interest receipts also increased on account of higher recoveries from (i) Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) on consolidated loans up to 2017-18, amounting to ₹2,174 crore and (ii) Tamil Nadu Transmission Corporation Limited (TANTRANSCO) amounting to ₹297 crore, in connection with the ADB-assisted Chennai-Kanyakumari Industrial Corridor Project.
Trends of non-tax revenue and its components during the period 2015-16 to 2024-25 are shown in Chart 1.12 and Chart 1.13 respectively.
User charges are collected by the States against supply or use of different services and facilities such as education, health, water supply and sanitation and tourism. Audit observed a significant decline of ₹1,307 crore in receipts from the education sector during the year, along with a decrease of ₹183 crore under Dividend and Profits. In addition, receipts under the Non-Ferrous Mining and Metallurgical Industries component declined by ₹610 crore, mainly due to an increase in refunds made by the Government amounting to ₹431 crore issued during the year.
Trends in the components of State's share in Union taxes and duties are shown in Table 1.8.
The State's share in Union Taxes and Duties contributed 18.56 per cent of the total revenue receipts, registering an increase of 13.93 per cent over the previous year. The increase was mainly due to higher allocation of the Share of Net proceeds of CGST, Corporation tax and Income other than Corporation Tax' by the GoI to the State Government during the year.
Percentage of total State's share in Union taxes and duties to GSDP during the period 2015-16 to 2024-25 is given in Chart 1.14.
The ratio of the State's share in Union taxes to GSDP fluctuated during 2018-19 to 2022-23 but remained stable during the last two years, indicating that the growth in central devolution has broadly kept pace with the expansion of the State's economy.
Trend of Grants-in-aid (GIA) from GoI and its components are shown in Table 1.9.
The Grants-in-aid decreased significantly by ₹8,833 crore (34.85 per cent) in the current year over the previous year. The decrease was mainly due to decrease in receipts of share in compensation for loss of revenue arising out of implementation of Goods and Services Tax (GST) (₹4,574 crore) and decrease in central assistance, Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) (₹831 crore), Pradhan Mantri Awaas Yojana (PMAY) - Urban (₹654 crore) and Atul Mission for Rejuvenation and Urban Transmission (AMRUT) (₹561 crore).
The decrease in Grants-in-aid is primarily attributable to the post pandemic normalisation of implementation and fund release cycles. The higher receipts recorded during 2023-24 were largely on account of the clearance of accumulated liabilities pertaining to the COVID-19 period and therefore, constituted a high base for comparison. Consequently, the decline observed during 2024-25 does not indicate a structural reduction in inter-governmental transfers.
Percentage of Grants-in-aid from Government of India to GSDP is given inChart 1.15.
Over the decade, Grants-in-Aid from GoI exhibited an upward trend up to 2022-23, followed by a declining trend thereafter. The decline was mainly attributable to reduction in other transfers/Grants to States. The percentage of Grants-in-Aid to GSDP was also on a declining trend since 2020-21.
Out of the Grants of ₹ 10,422.79 crore received for Centrally Sponsored Schemes (CSS) during 2024-25, major allocations were made to the schemes shown inTable 1.10.
The Fifteenth Finance Commission (XV FC) grants were provided to the States for Local Bodies (LB) and State Disaster Response Fund (SDRF), State Disaster Mitigation Fund (SDMF) and Health Sector. Details of grants provided by GoI are given in Table 1.11.
Further, a portion of both Tied Grants amounting to ₹200.84 crore and Untied Grants amounting to ₹133.89 crore remained unreleased by the State Government during 2024-25. The non-release of these amounts resulted in partial or non-implementation of activities planned under the Tied and Untied components of Panchayati Raj Institutions. In reply (November 2025), the State Government stated that GoI released ₹1,087.94 crore as Tied Grants and ₹725.29 crore as Untied Grants in two instalments during the financial year 2024-25. Of these, the second instalment, amounting to ₹200.84 crore under Tied Grants and ₹133.89 crore under Untied Grants, was released by GoI only on 31 March 2025. Consequently, the grants could not be released to the Panchayati Raj Institutions within the financial year 2024-25. The pending amounts were, however, released to the Rural Local Bodies on 08 April 2025.
Capital receipts comprise miscellaneous capital receipts such as proceeds from disinvestments, recoveries of loans and advances, debt receipts from internal sources (market loans, borrowings from financial institutions/commercial banks) and loans and advances from GoI.
Trends of capital receipts and its components during 2015-16 to 2024-25 are shown in Table 1.12.
Capital receipts as a percentage of GSDP is depicted in Chart 1.16
During 2024-25, the State's capital receipts increased by ₹13,429 crore (9.90 per cent) over the previous year. This increase was largely driven by Public Debt Receipts, indicating a continued and growing reliance on public borrowings to finance capital requirements as well as other expenditure obligations.
The increasing dependence on public debt receipts points to a structural imbalance in the composition of capital receipts and has significant implications for fiscal sustainability. Higher borrowings add to the State's committed liabilities, particularly in the form of interest payments, which may constrain fiscal space in the medium to long term and limit the Government's capacity to allocate resources towards developmental and priority sectors.
The projected revenue, deficits and GSDP by the XV FC and actuals for the financial year 2020-21 to 2024-25 are given in the Table 1.13.
From Table 1.13, it may be seen that though the XV FC projected the State to achieve a revenue surplus from the year 2022-23 onwards, the State continued to experience revenue deficit, despite the increase in GSDP.
Government expenditure is classified into revenue expenditure, capital expenditure, and loans and advances. Revenue expenditure includes costs for maintenance, repairs, and day-to-day functioning of departments, including administrative and establishment expenses. Capital expenditure relates to the initial construction of projects and sanctioned improvements or additions to assets. Loans and advances comprise funds provided by the government to Public Sector Undertakings and other entities, which are recoverable over time. Details of expenditure, total expenditure as percentage of GSDP and share of its components is given in Table 1.14, Chart 1.17 and Chart 1.18 respectively.
The State's revenue expenditure continued to increase over the years and remained the dominant component of total expenditure. Over the last decade, revenue expenditure increased by 133 per cent. However, its growth moderated to 6.12 per cent in 2024-25 from 10.63 per cent in 2023-24.
Capital Expenditure (including loans and advances) of the State recorded significant decadal growth and increased by 16.32 per cent in 2024-25 as compared to 2023-24. However, its ratio to Total Expenditure remained lower than that of all States (excluding UTs) during 2015-16 to 2024-25, except in 2016-17 and 2020-21. The share of Capital Expenditure (including loans and advances) in Total Expenditure stood at 15.21 per cent in 2024-25, compared to 16.59 per cent for all States (excluding UTs).
(* Share of Appropriation to contingency fund in total expenditure during 2024-25 stood at 0.09 per cent)
Out of the total expenditure of ₹3,88,032.21 crore incurred by the State during 2024-25, an amount of ₹3,321.81 crore pertained to pass-through transactions relating to Finance Commission grants. Of this, ₹1,478.50 crore was disbursed as grants to Panchayati Raj Institutions, ₹972.91 crore to Urban Local Bodies, and ₹870.40 crore to the Health Sector.
Sector-wise composition of expenditure is given in Table 1.15 and relative share of various sectors in total expenditure is depicted in Chart 1.19.
In 2024-25, the State incurred a total expenditure of ₹3,88,032 crore, of which the General, Social and Economic Sectors accounted for 32.05 per cent, 32.64 per cent and 26.46 per cent respectively. As can be seen from the sector-wise expenditure pattern depicted in Chart 1.19, the State prioritised Social Services and General Services over Economic Services during 2015-16 to 2024-25.
Over the decade, a significant increase in expenditure under the Social Services sector was observed, particularly in Health and Family Welfare (from ₹7,765 crore to ₹18,417 crore), Education, Sports, Art and Culture (from ₹25,016 crore to ₹45,263 crore), and Social Welfare and Nutrition (from ₹15,348 crore to ₹34,727 crore). Audit however observed that, compared to all States (excluding UTs) except in 2015-16, the share of Social Services in the State's total expenditure is consistently lower during the period. In 2024-25, the share stood at 32.64 per cent for the State as against 39.00 per cent for all States (excluding UTs).
The share of General Services in the State's total expenditure during 2024-25 was 32.05 per cent, which was higher than the corresponding all-States (excluding UTs) average of 29.79 per cent.
The share of Economic Services in total expenditure increased steadily during 2015-16 to 2024-25. Under it, Substantial increases were observed in Energy (from ₹3,920 crore to ₹24,637 crore), Agriculture and Allied Activities (from ₹7,825 crore to ₹19,248 crore) and Civil Supplies (from ₹5,425 crore to ₹11,515 crore). However, expenditure under Rural Development declined from ₹7,359 crore to ₹5,609 crore. Further, Audit observed that share of Economic Services in total expenditure remained lower than that of all States (excluding UTs) except 2022-23 during the decade and stood at 26.46 per cent compared to 28.68 per cent for all States (excluding UTs) during 2024-25.
The share of loans and advances in the State's Total Expenditure during 2024-25 was 3.07 per cent, which was significantly higher than the corresponding all-States average of 1.45 per cent.
An overall analysis indicates a greater emphasis on welfare and administrative needs over growth-oriented investment, reflecting the State's prioritisation of administrative functions and social welfare programmes.
Revenue expenditure is incurred to maintain the current level of services and payment for past obligation. As such, it does not result in any addition to the State's infrastructure and service network. Growth of revenue expenditure, its ratio to total expenditure, GSDP and revenue receipts are shown in Table 1.16.
The ratio of revenue expenditure to revenue receipts remaining well above 100 per cent indicates that the state's routine expenditure consistently exceeded its revenue receipts. Persistent excess of revenue expenditure over revenue receipts reduces fiscal flexibility and heightens the risk of long-term debt accumulation.
Further, the ratio of revenue expenditure to total expenditure also remained very high ranging between 76.62 per cent to 87.65 per cent during the decade.
The share of revenue expenditure in total expenditure was higher than that of all States (excluding UTs) in most years, except 2016-17 and 2020-21 and stood at 84.70 per cent in 2024-25, broadly in line with the all-States average (excluding UTs) of 83.41 per cent.
Committed expenditure, comprising salaries, pensions, and interest payments, accounted for a substantial share of revenue expenditure and constituted 53.75 per cent during the year.
Sector-wise composition of Revenue expenditure is given in Table 1.17 and relative share of various sectors in Revenue expenditure is depicted in Chart 1.20. Detailed Sector-wise expenditure is given in Appendix 1.2.
The committed expenditure of the State Government on revenue account consists of interest payments, expenditure on salaries and wages; and pensions. These expenditure has first charge on Government resources. The components of committed expenditure is given in Table 1.18 and committed expenditure as a percentage of revenue receipts and remaining fiscal space for other expenditure is given in Chart 1.21.
From Chart 1.21, it could be seen that the percentage of the fiscal space available in revenue receipts after meeting the committed expenditure had been fluctuating from 44 per cent to 32 per cent during the period 2015-16 to 2024-25. Committed expenditure grew by 8.15 per cent over the previous year consuming a growing share of revenue receipts leaving lesser space for development sector during the year.
Further, audit observed that committed expenditure as a percentage of revenue expenditure has been on an increasing trend over the last four years and accounted for 53.75 per cent of revenue expenditure during the year. Salaries and wages, which constituted the major component of committed expenditure, increased by 5.58 per cent during the year. Interest payments which was attributable to the repayment of public debt, also exhibited an upward trend during the last two years and increased by 11.84 per cent during the year. While the all-States average (excluding UTs) for interest payments stood at 12.83 per cent of total revenue expenditure, the State's corresponding share was significantly higher at 18.23 per cent, reflecting an increasing debt burden.
Subsidies formed 13.56 per cent of the Total Expenditure. Department-wise major subsidies for FYs 2015-16 to 2024-25, are shown in Table 1.19.
During 2024-25, subsidies increased by ₹14,854 crore (39.35 per cent) over the previous year, mainly due to a subsidy of ₹6,916 crore extended to the Tamil Nadu Electricity Board on behalf of farmers using farm pump sets (Agriculture Department) and an increase of ₹5,854 crore under the Magalir Urimai Thogai Scheme (Department of Special Programme Implementation). Audit scrutiny revealed that the subsidy to Tamil Nadu Electricity Board (TNEB) for farm pump sets was classified as a subsidy in 2024-25 only, whereas it had been booked as Grants-in-Aid in earlier years. The increase in expenditure under the Magalir Urimai Thogai Scheme was largely attributable to its launch in mid-September 2023, as expenditure in the previous year covered only six months of implementation.
During the year, subsidies constituted 10.08 per cent of total revenue expenditure at the all-States average level (excluding UTs), while the corresponding share in the State was significantly higher at 16.00 per cent. This elevated subsidy burden constraints fiscal space for developmental spending and may adversely impact fiscal sustainability over the long term.
Assistance provided by way of grants to the Local Bodies and other institutions during the period 2015-16 to 2024-25 is presented in Table 1.20 (a).
During the year, financial assistance to the Local Bodies and other institutions decreased by ₹10,716 crore (12.84 per cent) over the previous year. This was mainly due to decrease in assistance to Zilla Parishads and other PRIs by ₹1,417 crore (11.55 per cent) and financial assistance to other institutions by ₹ 9,515 crore (14.99 per cent). The overall quantum of financial assistance to the local bodies and other institutions as a percentage to revenue expenditure decreased to 22.13 per cent during the current year from 26.94 per cent of the previous year.
In exercise of the powers conferred by Sub - section (1) of Section 198 of the Tamil Nadu Panchayats Act (Tamil Nadu Act 21 of 1994), the Governor of Tamil Nadu constituted a Finance Commission referred to in Article 243-I of the Constitution of India.
The First State Finance Commission (SFC) was constituted in 1994. Presently, the State is in the third year of the sixth SFC for the award period 2022-23 to 2027-28.
The status of the sixth SFC recommendation for the award period 2022-23 to 2027-28 is given in Table 1.20 (b).
Audit observed that the funds recommended by the Sixth SFC and accepted by the State Government for Local Bodies were fully released during the first three years of the award period (2022-23 to 2024-25) as detailed in Table 1.20(c).
Capital expenditure (excluding loans and advances) is primarily expenditure on creation of fixed infrastructure assets, such as roads and buildings. Capital expenditure, in both the Centre and the State, is being met from budgetary support and extra budgetary resources/off-budget borrowings. It also includes investments made by the State Government in Companies/Corporations. Trend of capital expenditure in the State over the last 10 years is given in Chart 1.23
As can be seen from the ratio of capital expenditure to GSDP fluctuated up to 2020-21, exhibited a declining trend up to 2023-24 and remained at the same level in 2024-25.
Audit observed that the share of capital expenditure in total expenditure also fluctuated over the last decade. While the share stood at 11.70 per cent in 2015-16, it remained relatively stable during the period from 2016-17 to 2019-20, ranging between 10.36 per cent and 10.68 per cent. During 2020-21 to 2024-25, the share of capital expenditure ranged between 11.28 per cent and 12.56 per cent.
In addition to capital expenditure of ₹47,107.95 crore incurred during the year, the State Government also transferred ₹12,249.93 crore as Grants-in-Aid for the creation of capital assets to local bodies and other institutions. However, Grants-in-Aid for the creation of capital assets declined by 1.94 per cent as compared to the previous year.
Further, capital expenditure constituted only 32.44 per cent of Public Debt Receipts, indicating that a relatively limited proportion of borrowings were translated into infrastructure and capital asset creation.
Sector-wise composition of Capital expenditure is given in Table 1.21. Detailed Sector-wise expenditure is given in Appendix 1.2.
Audit observed that out of the total expenditure of ₹3,88,032 crore in 2024-25, capital expenditure (excluding Loans and Advances) amounted to ₹47,108 crore. Sector wise allocation of Capital Expenditure revealed that major contribution was towards Economic Sector (29.41 per cent) and Social Sector (12.81 per cent), indicating that capital was primarily directed towards infrastructure-related activities such as industry and trade. This expenditure pattern aligned with the State's growth profile, as the Tertiary Sector, the largest contributor to GSDP, grew by 17.45 per cent during the year, while the Secondary Sector also recorded robust growth of 17.72 per cent.
Trend of relative share of various sectors in capital expenditure over the last 10 years is given in Chart 1.24.
As of 31 March 2025, the State Government's investment in companies, corporations and other bodies stood at ₹61,734.90 crore, comprising Government Companies (₹61,231.53 crore), Co-operative Institutions (₹498.85 crore), Statutory Corporations (₹3.81 crore) and Joint Stock Companies (₹0.71 crore).
Trends of investment at the end of the year in companies, corporations, co-operative institutions and other bodies, and return on these investment is depicted in Chart 1.25. Rate of return on investment made vis-à-vis average rate of interest on Government borrowing is depicted in Chart 1.26.
During 2024-25, the return on investment 9 was ₹514 crore (0.83 per cent) against the total investment of ₹61,734.90 crore made by the Government in Government companies, Co-operative institutions, Statutory Corporations and Joint Stock Companies as of March 2025. The rate of return on such investments ranged between 0.37 per cent and 1.56 per cent during the period from 2015-16 to 2024-25. In contrast, the average rate of interest paid by the State Government on its borrowings during the same period ranged between 7.76 per cent and 10.52 per cent. The consistently low returns on the Government's substantial equity investments indicate sub-optimal utilisation of public funds and constraints the Government's ability to augment its revenue.
Further, audit observed that during the year the Government made fresh investments amounting to ₹42,393.15 crore in 13 companies. Of this, ₹38,664.32 crore was invested in loss making companies viz., Tamil Nadu Electricity Board (₹26,378.11 crore), Tamil Nadu Power Distribution Corporation Limited (erstwhile TANGEDCO) (₹11,393.88 crore) and seven 10 State Transport Corporations (₹892.33 crore). Only ₹497.20 crore was invested in profit making companies viz., Tamil Nadu Transport Development Finance Corporation Limited (₹372.06 crore), Tamil Nadu Industrial Development Corporation Limited (₹100 crore) and Tamil Nade Small Industries Development Corporation Limited (₹25.14 crore). The remaining fresh investment of ₹3231.63 crore pertained to Chennai Metro Rail Limited (CMRL).
Awell-defined dividend policy mandating a minimum return from profit- making enterprises, enables the State Government to optimise its returns from investments in State Public Sector Enterprises (SPSEs) and enhances monitoring of the SPSEs financial performance. As per a common dividend policy formulated (May 2014) and guidelines issued (March 2015) by the Government, all Public Sector Undertakings (PSUs) shall declare a dividend @ 30 per cent net profit (after tax) or 30 per cent of paid-up share capital, whichever is higher, subject to the availability of disposable profits. The Government had also requested (October 2025) the PSUs to consider declaring at least 90 per cent of the annual dividend as interim dividend, after factoring in reserves, capital expenditure and business needs, subject to availability of disposal profits.
The Government stated that, out of total dividend of ₹513.53 crore during the year, ₹390.55 crore pertains to the interim dividend received from PSUs during the year which was 35 per cent higher than the interim dividend of ₹289.90 crore received in the previous year. Further, there was a difference of ₹3.19 crore dividend declared by the Government and booked in the accounts during the year 2024-25 as observed from the Finance Account. The reason for difference was stated as under reconciliation.
In addition to the investments in co-operative societies, corporations and companies, the State Government has also been providing loans and advances to many institutions/organisations. Table 1.22 presents the position of outstanding loans and advances as on 31 March 2025 and interest receipts vis-à-vis interest payments by the State Government on its borrowings during the last ten years.
During the year, Loans and Advances disbursed by the Government increased by 3,060 crore (34.60 per cent) whereas its recovery declined by ₹208 crore (5.17 per cent). Audit observed that, out of the total Loans and Advances disbursed (₹55,965 crore) by the Government to various institutions as of March 2025, fresh loans disbursed (₹11,905 crore) during the year include loans to (i) Chennai Metro Rail Limited (₹8,550 crore) and (ii) Transport Corporations (₹1,360 crore).
Further, at the end of March 2025, repayment of loans by 22 institutions were in arrears amounting to ₹17,327.91 crore (principal: ₹11,159.41 crore and interest ₹6,168.90 crore), of which 81.33 per cent of principal (₹9,076.34 crore) and interest (₹5,327.95 crore) relates to eight State Transport Corporations.
Effective measures to recover the outstanding loans would strengthen the Government's fiscal position.
The Contingency Fund of the Government of Tamil Nadu is intended to provide advances for meeting unforeseen expenditure, pending its authorisation by the State Legislature. The fund is recouped once the Legislature approves the additional expenditure. The corpus of the fund has been increased from ₹150 crore to ₹500 crore in 2024-25.
During 2024-25, ₹56.27 crore has been withdrawn from the fund under various budgetary heads and same has been replenished by the end of the FY 2024-25. Thus as on 31 March 2025, the Contingency Fund had a balance of ₹500 crore.
Details of expenditure made out of the Contingency Fund are discussed inParagraph 2.7 of Chapter-II.
Receipts and Disbursements in respect of certain transactions such as Small Savings, Provident Funds, Reserve Funds, Deposits, Suspense and Remittances, which do not form part of the Consolidated Fund, are kept in the Public Account set up under Article 266(2) of the Constitution of India and are not subject to vote by the State Legislature. The balance after disbursements during the year is the fund available with the Government for use for various purposes.
The component-wise net balances in Public Account of the State is given in Table 1.23.
During the year 2024-25, the net public account liability of the Government decreased to 14.26 per cent compared to an increase of 3.85 per cent during 2023-24, indicating a positive shift despite continuing stress on financial resources.
Reserve Funds are created for specific and defined purposes under the Public Account of the State Government. These funds are met from contributions or grants from the Consolidated Fund or from outside agencies. It comprises interest bearing reserve funds and reserve funds not bearing interest.
There were three interest bearing funds and four Reserve Funds not bearing interest as on 31 March 2025. The fund balances lying in these Reserve Funds as on 31 March 2025 are given in Table 1.24.
As per an agreement with the Reserve Bank of India (RBI), the State Government has to maintain a minimum daily cash balance of ₹3.25 crore with RBI. If the balance falls below this minimum, the shortfall is met through instruments like Ways and Means Advances (WMA)/Special Ways and Means Advances (SWMA)/Special Drawing Facility (SDF)/Overdrafts (OD), with the WMA limit revised periodically by RBI. With effect from 31 March 2022, the limit for WMA to the State Government is ₹3,601 crore.
During 2024-25, the State maintained a minimum daily cash balance with the RBI and no WMA/ SWMA/ OD was availed during the year. Audit also observed that no Ways and Means Advances were availed by the State during the past 10 year period.
The State Government invests surplus cash balances, including those from earmarked reserve funds in GoI securities and Treasury Bills. Earnings from these investments are credited under '0049-Interest Receipts'. The cash balances are invested in the Consolidated Sinking Fund and Guarantee Redemption Fund.
Cash balance and investment details for 2023-24 and 2024-25 are provided inTable 1.25.
Cash Balances and investments at the end of the current year increased by ₹17,039.87 crore (19.97 per cent) over the previous year.
The Government had earned an interest of ₹97.49 crore during 2024-25 from the investments made in GoI securities for ₹3,507 crore (Consolidated Sinking Fund) and Treasury Bills for ₹4,177 crore (Guarantee Redemption Fund) besides DCPS investment in LIC for ₹89,085 crore and deposits of ₹10 crore with State Bank of India.
The trend of cash balance investment account of the Government during the period 2015-16 to 2024-25 is shown in Table 1.26.
At the end of March 2025, General Cash Balance was ₹5,584.34 crore.
Fiscal Sustainability is the ability of a government to manage its revenue and expenditure in a manner that ensures it can meet its current and future obligations such as public services, infrastructure, and debt repayments without excessive borrowing or accumulating unsustainable debt. It implies maintaining a stable balance between revenue generation and expenditure over the long term. Chart 1.27 and Chart 1.28 respectively shows receipts and expenditure of the State as a percentage of GSDP, during the financial years 2015-16 to 2024-25.
During the year, total own revenue as a percentage of GSDP for all States (excluding UTs) stood at 7.14 per cent, whereas the State's own revenue as a percentage of GSDP was comparatively lower at 6.86 per cent. Similarly, revenue expenditure and capital expenditure of all States (excluding UTs), as a percentage of GSDP, were 12.91 per cent and 2.57 per cent respectively, while the corresponding ratios for the State were lower at 10.54 per cent for revenue expenditure and 1.51 per cent for capital expenditure during the year.
Outstanding liability of the State along with its percentage to GSDP for the years 2015-16 to 2024-25 is depicted in Chart 1.29.
As seen from Chart 1.29, on a decadal basis, the debt-to-GSDP ratio exhibited an increasing trend from 2015-16 to 2022-23 and thereafter showed a slight declining trend from 2023-24 onwards. The XV FC in its report brought out the debt path of States for the years 2020-21 to 2024-25. Audit observed that the State had maintained the debt indicative path during the last five years except in 2021-22. During the year 2024-25, the debt to GSDP ratio was 27.38 per cent as against the prescribed limit of 28.90 per cent.
Total liabilities of the State Government typically constitutes Internal Debt of the State (market loans, ways and means advances from RBI, special securities issued to National Small Savings Fund and loans from financial institutions, etc.), loans and advances from the Central Government, and Public Account Liabilities. The component-wise liability trends of the State for the period of ten years beginning from 2015-16 are presented in Table 1.27.
It can be seen from Table 1.27 that the total outstanding public debt of the State increased significantly during the decade from 2015-16 to 2024-25, rising from ₹1,94,096 crore to ₹7,94,107 crore (309 per cent). During the year, outstanding public debt increased by 15.16 per cent, with internal debt constituting the major portion of the increase.
Break-up of the outstanding total liabilities at the end of 2024-25 is shown inChart 1.30.
Chart 1.31 depicts the quantum of internal debt taken vis-à-vis repaid during the period of ten years i.e. 2015-16 to 2024-25.
It can be seen from Chart 1.31 that internal debt increased by nearly 3.69 times over the last ten years, while the corresponding repayment increased by about 6.70 times during the same period. Audit observed that the increase in the repayment burden was attributable to moratoriums on loans availed in previous years, coupled with the servicing of accumulated past debt.
Further, it was observed that the interest paid during the year amounted to ₹48,852 crore, which exceeded the repayment of principal amounting to ₹38,470 crore. This reflects the rising level of committed expenditure arising from the State's debt obligations.
Borrowed funds should ideally be used to fund capital creation and developmental activities. Using borrowed funds for meeting current consumption and repayment of interest on outstanding loans is not a healthy trend. Table 1.28 and Chart 1.32 respectively depict the utilisation and trends of borrowed funds during 2015-16 to 2024-25.
From Chart 1.32 above, it may be seen that during the year, a substantive portion of borrowed funds (public debt) had been utilised towards revenue expenditure (34 per cent) and repayment of debt (28 per cent) leaving a lesser fiscal space for capital creation and developmental activities.
Debt maturity and repayment profile indicates commitment on the part of the Government for debt repayment or debt servicing. Debt maturity profile of the State is depicted in Chart 1.33.
It may be seen from Chart 1.33 above that a large chunk of debt (around 43 per cent) is scheduled for repayment within a relatively short to medium term (0-7 years), indicating increasing liquidity pressure on the State. This may create an overwhelming fiscal obligation in later years which may compel the State to rely heavily on fresh borrowings during such years.
Table 1.29 depicts financing pattern of the fiscal deficit during 2024-25.
As per the Finance Accounts of the State for the year 2024-25, the revenue deficit of the State was ₹45,840 crore (1.47 per cent of GSDP), fiscal deficit was ₹1,01,344 crore (3.25 per cent of GSDP) whereas primary deficit was ₹41,435 crore (1.33 per cent of GSDP).
Audit scrutiny of transactions during the year revealed that, revenue deficit, fiscal deficit and primary deficit were understated due to transactions detailed in Table 1.30.
From Table 1.30 above, it could be seen that, the post audit Revenue Deficit works out to ₹45,946.17 crore (1.47 per cent of the GSDP) and Fiscal Deficit to ₹1,01,449.79 crore (3.25 per cent of the GSDP). However, if Off Budget Borrowings (₹593.24 crore) made by the Government during the year are considered as part of State's liabilities, the ratio of Fiscal Deficit to GSDP would be 3.27 per cent.
As per the Tamil Nadu Fiscal Responsibility (TNFR) Act of 2003 and its amendments aligned with the XV FC, the State aims to:
Achievements, vis-à-vis the fiscal targets, prescribed in the TNFR Act for the year 2015-16 to 2024-25, are detailed in Table 1.31 and Chart 1.34.
Though the State could not contain the ratio of Fiscal Deficit to GSDP within 3 per cent as per the TNFR Act, it could be seen from Chart 1.34 above that the percentage had decreased from 3.36 in 2023-24 to 3.25 during the year and also declined during the past five years, which is an encouraging trend.
Audit observed that though the State had improved in Debt to GSDP ratio, it continues to reel under revenue deficit as could not achieve the XV FC projection of Revenue Surplus from the year 2022-23 onwards. Actual performance when compared to the target set in MTFP is given in Table 1.32
It may be seen from Table 1.32 above that there was a significant increase in receipts under non-tax revenue and Share of Central Taxes against the MTFP projection for the year 2024-25. However, the revenue and fiscal deficits were also higher than the projection made in the MTFP.
The targets set by XV FC and those projected in the State budget vis-à-vis achievements in respect of major fiscal aggregates with reference to GSDP during 2024-25 are given in Chart 1.35, Chart 1.36 and Chart 1.37.
During the year 2024-25, the State was unable to contain the revenue surplus-GSDP and fiscal deficit-GSDP ratios within the limit fixed by the XV FC and those projected in the revised budget estimates. However, outstanding liabilities/debt as percentage of GSDP remained within the target.
The comparison of key fiscal indicator of the State relative to GSDP viz. Revenue Deficit, Fiscal Deficit and overall debt/liability with aggregate of all States for the period 2015-16 to 2024-25 are given in Chart 1.38, 1.39 and 1.40.
Over the decade, the State's revenue deficit as a percentage of GSDP was higher than that of all States (excluding UTs). The State's fiscal deficit as a percentage of GSDP was also higher than that of all States (excluding UTs) except for the year 2015-16. In 2024-25, the fiscal deficit stood at 3.25 per cent, broadly aligned with 3.23 per cent for all States (excluding UTs).
The State's overall debt as a percentage of GSDP was lower than that of all the States (excluding UTs) except for the year 2021-22 to 2023-24. In 2024-25, it stood at 27.38 per cent compared to 27.94 per cent for all the States (excluding UTs).
Audit observed that the overall State's debt-GSDP ratio remained within the debt path trajectory prescribed by the Fifteenth Finance Commission.
Debt sustainability refers to the ability of the State to service its debt obligation now and in the future. Analysis of variations in debt sustainability indicators is given in Table 1.33.
Analysis of the data exhibited in Table 1.33 indicates that the growth rate of overall debt declined from 20.96 per cent to 12.62 per cent during the period from 2020-21 to 2024-25. The target for debt as a percentage of GSDP, as projected by the Fifteenth Finance Commission, was achieved in all years except 2021-22.
Audit further observed that a substantial portion of the State's gross borrowings continued to be utilised for the repayment of existing debt. This indicates that a significant share of new borrowings was used for debt rollovers rather than for financing productive capital expenditure, resulting in lower net availability of borrowed funds. Such a pattern constrains the State's capacity to undertake new developmental projects and increases the risk of entering a debt-servicing cycle instead of supporting productive investment.
The ratio of interest payments to revenue receipts, which measures the affordability of debt servicing, increased to 21.18 per cent during 2024-25. The rising level of debt servicing costs is a matter of concern.
During the last five years, debt stabilisation was negative only in 2020-21. From 2021-22 onwards, it turned positive and remained so through 2024-25. The positive debt stabilisation reflects a decline in the debt-to-GSDP ratio and indicates that the State is presently in a stable position with respect to its debt repayment capacity.
Guarantees are contingent liabilities on the Consolidated Fund in case of borrower defaults. The State extends guarantees for loans raised by entities like statutory corporations, boards, local bodies, and co-operative institutions.
As per Article 293 of the Constitution of India, limits for giving guarantees by the State Government have to be fixed by the State Legislature. The Tamil Nadu Fiscal Responsibility Act 2003 prescribes (i) a cap on total outstanding guarantees to 100 per cent of total Revenue Receipts of the preceding year or 10 per cent of GSDP, whichever is lower and (ii) a cap on risk weighted guarantees to 75 per cent of total Revenue Receipts of the preceding year or 7.5 per cent of GSDP, whichever is lower.
The State Government created the Guarantee Redemption Fund (GRF) in March 2003 for meeting the expenditure towards discharging the guarantees invoked. The fund is administered by the Reserve Bank of India and the amount is invested in treasury bills. As per the guidelines of GRF scheme, the Government has to contribute an amount equivalent to at least 1/5th of the outstanding invoked guarantee and amount likely to be invoked as a result of the incremental guarantees issued during the year. The transactions of the Fund are reflected in the Finance Accounts (Statement 21) under "8235 - General and other Reserve Fund - 117 - Guarantee Redemption Fund.
The balance in the Guarantee Redemption Fund at the commencement of the year 2024-25 was ₹3,293.64 crore. During the year, an amount of ₹903.93 crore was credited to the Fund, which included ₹720.58 crore received as guarantee fees and ₹183.34 crore representing gains on the sale of securities.
As on 31 March 2025, the total accumulation of the Fund was ₹4,197.57 crore, out of which, ₹4,176.90 crore was invested in treasury bills. No guarantee was invoked during the year.
Details of the guarantees for the last ten years is given in Table 1.34.
Audit observed that the outstanding guarantees for ₹1,45,011 crore as on 31 March 2025 related to Power Sector (₹1,13,435 crore), State Finance Corporations (₹5,903 crore), Co-operatives (₹279 crore), Urban Development and Housing (₹207 crore) and Others (₹25,187 crore).
Further, it was observed that the total outstanding guarantees of the State Government constituted 54.80 per cent of the total revenue receipts of the previous year 2023-24 (₹2,64,597 crore) and 4.65 per cent of the GSDP at current prices (₹31,18,590 crore). These levels were well within the ceilings prescribed for guarantees by the Government.
However, against the estimated receivable guarantee fees of ₹776.33 crore, the Government realised only ₹720.58 crore, resulting in a shortfall in the collection of guarantee fees amounting to ₹55.75 crore.
Deficits can be improved by enhancing revenues and rationalizing expenditures. This includes strengthening tax compliance, widening the tax base, revising user charges, and monetizing idle government assets. On the spending side, better targeting of subsidies, controlling salary and pension growth, and ensuring proper classification of expenditure are key factors. Prioritizing productive capital investment and improving debt management through transparent and efficient borrowing can further ease fiscal pressure. These measures collectively create fiscal space and help reduce revenue, fiscal, and primary deficits in a sustainable manner. These issues are discussed in the succeeding paragraphs.
Untapped revenue potential, if harnessed effectively, can significantly enhance fiscal space and reduce dependence on debt. Inefficiencies in assessment, undervaluation, and limited enforcement mechanisms of key tax streams such as State GST, Stamp Duty, and Excise will lead to subdued revenue growth. Under-realized non-tax revenues, with low user charges, poor cost recovery, and suboptimal returns on public assets and investments also impede the fiscal space. Timely realization of pending arrears is (tax and non- tax) another step towards enhancing the fiscal space.
As on 31 March 2025, the arrears of revenue in respect of principal heads of revenue were ₹ 58,110.16 crore, of which ₹ 28,726.53 crore were outstanding for more than five years, as depicted in Table 1.35.
Arrears of revenue of the State accounted to 27.18 per cent of the State's Own Revenue (₹2,13,828 crore).
The department replied (January 2026) that the outstanding amount was distributed under various heads viz., arrears covered by First Appeal, NCLT, High Court Stay, remanded by Appellate forums and stopped business cases where no property details were available in the registration file of taxpayers. Further, it was stated that collectable arrears as on 31 March 2025 under SGST and GST were ₹600.18 crore and ₹244.18 crore respectively for which continuous follow up is made by initiating recovery process.
In view of the persistent revenue deficit and fiscal deficit experienced by the State Government over the years, there is a need for the Government to undertake substantive and sustained measures to improve revenue realisation and clear the accumulated arrears.
The information on number of cases pending assessment at the beginning of the year, cases becoming due for assessment, cases disposed off during the year and number of cases pending for finalisation at the end of the year, as furnished by the Department of Excise and Department of Taxation in respect of Sales Tax/VAT is depicted inTable 1.36.
The cases of evasion of tax detected, cases finalised and the demands for additional tax raised are important indicators of revenue collection efforts of the State Government.
The details of cases of evasion of tax detected by the Excise and Taxation, cases finalised and the demand for additional tax raised; during the year 2024- 25, as reported by the departments concerned, are depicted in Table 1.37
Considering the substantial number of cases and the amount involved, the State may adopt a time bound approach to ensure completion of assessment and investigation and realise the pending revenue.
Chart 1.41 and Chart 1.42 depict committed expenditure and subsidies together as a percentage of Revenue Receipts and Revenue Expenditure during the FY 2015-16 to 2024-25 respectively.
In 2024-25, the State's committed expenditure of ₹1,76,676 crore comprising salaries and wages (₹76,116 crore), pensions (₹40,651 crore) and interest payments (₹59,909 crore) accounted for approximately 61.47 per cent of the Revenue Receipts. In addition, subsidies amounted to ₹52,603 crore, bringing the total rigid expenditure to ₹2,29,279 crore, which was 81.07 per cent of the State's revenue receipts.
During the decade, the ratio of State's committed expenditure including subsidies to Revenue Receipts (ranging from 65 per cent to 83 per cent) which was consistently higher than that of all States (excluding UTs). The ratio of State's committed expenditure including subsidies to Revenue Expenditure (ranging from 58 per cent to 70 per cent) was higher during the decade except for the year 2021-22 than that of all States (excluding UTs).
The high and inflexible nature of such expenditure significantly compresses fiscal space, limiting the State's ability to allocate resources towards capital investment and developmental priorities. This structural imbalance increases the risk of persistent revenue and primary deficits, constrains long-term fiscal sustainability and reduces the government's capacity to respond to emergent socio-economic challenges.
There is an urgent need for expenditure reform through rationalization of subsidies, improved targeting, and prudent management of salary and pension commitments, to enhance fiscal flexibility and ensure a sustainable fiscal path.
An assessment of capital blocked in incomplete capital projects would also indicate the quality of Capital Expenditure. Blocking of funds in incomplete projects/ works impinges negatively on the quality of expenditure and deprives the State of the intended benefits of the projects for prolonged periods. Further, funds borrowed for implementation of these projects, during the respective years would lead to an extra burden, in terms of servicing of debt and interest liabilities. Details of the incomplete projects are shown in Table 1.38 (Based on information provided by the State Government for Appendix-IX of the Finance Accounts for the year 2024-25).
Analysis of four incomplete projects which are due for completion between the period 2015 to 2022 revealed the followings -
Delays in the completion of projects result in cost escalation and defer the intended benefits to society. Timely and effective measures are required to ensure completion of projects within the stipulated timeframe so as to avoid cost overruns and delays in the realisation of envisaged benefits.
Enhancing human development levels requires the States to step up their expenditure on key social services like education and health. Low fiscal priority (ratio of expenditure under a category to aggregate expenditure) is attached to a particular sector, if the allocation is below the respective national average. The higher the ratio of these components to total expenditure, the quality of expenditure is considered to be better. Expenditure priority of the State with regard to Health, Education and Capital expenditure are shown in Table 1.40 below:
From Table 1.40 above, it can be seen that the ratio of expenditure on education to total expenditure has come down from 13.76 per cent in 2020-21 to 11.44 per cent in 2024-25. Similarly, ratio of expenditure on health to total expenditure has dropped from 5.44 per cent in 2020-21 to 4.75 per cent in 2024-25 indicating a decline in priorities on these sectors in the past five years by the State Government.
Undischarged/deferred liabilities, if not addressed timely, will reduce the available fiscal space for future developmental and infrastructure spending. Besides creating lack of transparency and credibility, this impair the state's ability to raise resources in a sustainable manner, thereby impacting overall fiscal health and long-term sustainability.
Audit observed that the State Government had accumulated several undischarged liabilities over the years, which have significant implications for fiscal sustainability. These include:
The cumulative value of these un-discharged liabilities amounted to ₹1,038.67 crore 16 which is equivalent to 0.03 per cent of the GSDP and 1.02 per cent of the Fiscal Deficit for the year.
Audit recommends that the State Government disclose and address all un- discharged liabilities transparently, and make provisions for timely discharge of these obligations to avoid future fiscal stress.
The review of the State's Finances for 2024-25 indicates a phase of strong economic expansion alongside continuing fiscal pressures. The State recorded robust growth in GSDP (15.98 per cent), with per capita income remaining consistently above the national average, reflecting favourable demographic and socio-economic fundamentals.
Though the State had improved in Debt to GSDP ratio, it continued to reel under revenue deficit as could not achieve the XV FC projection of Revenue Surplus from the year 2024-25 and Fiscal Deficit to GSDP ratio within 3 per cent as prescribed in TNFR Act 2003.
However, this macroeconomic strength did not fully translate into commensurate fiscal consolidation. Revenue receipts grew at a relatively modest pace (6.89 per cent), resulting in subdued revenue buoyancy and the continuation of a revenue deficit (₹45,840 crore). The State's finances remained characterised by a high share of revenue expenditure (84.70 per cent of total expenditure), rising committed expenditure (53.75 per cent of revenue expenditure), and an expanding subsidy burden (16 per cent of revenue expenditure), which collectively constrained fiscal flexibility.
Capital expenditure increased in absolute terms, reflecting continued emphasis on infrastructure and development; nevertheless, a significant portion of borrowings was utilised for revenue expenditure and debt servicing rather than asset creation. Declining grants-in-aid from the Government of India and weak recovery of loans and advances further accentuated reliance on public debt to finance expenditure.
Overall, while the State demonstrated adherence to debt sustainability norms, the fiscal structure continues to be marked by structural imbalances, particularly in revenue mobilisation, expenditure composition, and the utilisation of borrowed funds. Addressing these issues is essential to ensure the durability and quality of fiscal outcomes in the medium term.