A political dispute over Tamil Nadu's financial health, ignited by comments from a senior Congress functionary, has escalated with former Union Finance Minister P Chidambaram entering the fray to defend the state's fiscal management. The row, which began with remarks by AICC's Praveen Chakravarthy on the size of Tamil Nadu's debt, continued to simmer for over five days before Chidambaram's intervention on Thursday.
The Core of the Controversy: Debt vs. Fiscal Discipline
In a detailed post on social media platform X, Chidambaram challenged the basis of the criticism. He asserted that evaluating a state's fiscal discipline solely on the absolute size of its debt is an incorrect approach. Comparing Tamil Nadu's economy with that of Uttar Pradesh is fundamentally flawed, he argued. The veteran Congress leader emphasized that the debt-to-Gross State Domestic Product (GSDP) ratio is the appropriate and widely accepted indicator of financial health, not the debt figure in isolation.
"Developed nations like the United States, the United Kingdom, Japan, France, and Canada report increasing debt annually. India's central government debt and the debts of all Indian states also rise each year. This is a natural economic phenomenon," Chidambaram stated, providing a global context to the debate.
Tamil Nadu's Fiscal Metrics and the Official Data
Chidambaram pointed to specific data to bolster his defense. He noted that Tamil Nadu's fiscal deficit has been on a declining trajectory and is projected to meet the 3% of GSDP ceiling recommended by the Niti Aayog by the financial year 2025–26. While acknowledging that the state's financial management could be further streamlined, he insisted the overall picture was being misrepresented.
According to official statistics, Tamil Nadu's outstanding liabilities were estimated at approximately 26% of its GSDP for 2024–25. This figure remains comfortably within the 28.7% ceiling suggested by the 15th Finance Commission. The state's debt-to-GSDP ratio saw a predictable increase during the pandemic, rising from about 24.35% in 2019-20 to around 28.83% in 2021-22—a trend observed in most Indian states. It has since shown modest decline, falling to about 28% in 2023-24, indicating efforts toward fiscal consolidation.
Contextualizing the Numbers: State vs. Centre
Chidambaram's defense implicitly draws a contrast between state and central finances. The latest available data indicates that the Union government's debt stands at a significantly higher level, approximately 81% of the national GDP in the current financial year. This comparison underscores his argument that debt levels must be assessed relative to the economic output they support.
The debate, sparked by Praveen Chakravarthy's initial social media comments, has evolved into a discussion on the correct parameters for judging economic management. Chidambaram's entry has shifted the focus from the raw number of Tamil Nadu's debt to the more nuanced metric of debt sustainability relative to the state's economic size. The controversy highlights the ongoing political tensions and the technical complexities involved in public finance discourse, with implications for how state performance is evaluated in the national arena.
