The new Tamil Nadu government, led by C Joseph Vijay, is pursuing an ambitious goal to transform the state into a $1.5 trillion economy by 2036. However, this vision faces significant challenges, including global economic shocks affecting manufacturing and consumption, as well as growing fiscal strain due to profligate spending.
Revenue Mobilisation Concerns
Experts highlight that the primary concern is not the debt stock itself, but the state's weakening ability to generate revenue. M Suresh Babu, director of the Madras Institute of Development Studies (MIDS), noted that while Tamil Nadu's economy is growing at double digits, the state's own tax revenues (SOTR) are not rising proportionately. This indicates leakages and inefficiencies in tax collection. He emphasized the need for a microscopic review of public finances to plug leakages and identify new revenue streams. Babu also urged the state government to collaborate with the Union government to better utilize central schemes and funds, rather than engaging in constant confrontation.
Debt Restructuring and PSU Reforms
Babu suggested that the government should consider debt restructuring to lower interest costs, given the limited flexibility in spending due to large committed expenditures such as salaries, pensions, and interest payments. He also stressed the importance of reforming and restructuring loss-making state power and transport public sector units (PSUs) to reduce ongoing fiscal drag. The government should explore public-private partnership (PPP) models in PSUs while ensuring workers' welfare.
Prof N R Bhanumurthy, director of the Madras School of Economics (MSE), reiterated the need to focus on the financial health of PSUs and eliminate duplication across welfare programs. He called for strong expenditure rationalization, warning against layering new cash transfer schemes on top of existing ones without comprehensive restructuring. Otherwise, budgets could become unsustainable and benefit distribution uneven.
Reliance on Liquor and Property Revenues
Amid fiscal pressures, Tamil Nadu continues to depend heavily on two major revenue sources: liquor sales through state-run TASMAC and property registrations. Together, these two departments contributed over 75,000 crore in 2025-26, with TASMAC generating nearly 50,000 crore and the registration department about 25,500 crore. This reliance persists despite the recent announcement of closing 717 TASMAC outlets.
Historical data shows that liquor revenues have remained resilient even with fewer outlets. A Times of India analysis found that liquor sales rose nearly eight-fold over 15 years despite a 20% decline in TASMAC outlets between 2006 and 2021. A white paper by the DMK government in 2021 revealed that liquor sales surged from 4,195 crore in 2006-07 to 33,746 crore in 2020-21, even as 1,311 shops were shut.
Potential Revenue Losses and Alternatives
A Mohan, former chief auditor in the state finance department, estimated that closing 717 outlets could lead to an annual revenue loss of around 15,000 crore. To compensate, the government may need to increase excise duty and VAT, or expand Elite outlets that sell premium and imported liquor. Mohan also suggested exploring online liquor sales as an additional revenue avenue.
The registration department is another area with untapped potential. Official sources said Tamil Nadu has not revised guideline values for property registrations in over 12 years, unlike Karnataka, Andhra Pradesh, and Telangana. A senior official estimated that a comprehensive revision could increase revenues from property registrations by at least 30%.
Way Forward
Both economists stressed that welfare schemes must be better targeted to remain fiscally sustainable over the long term. The state government faces the delicate task of balancing its ambitious economic goals with prudent fiscal management.
