CHENNAI: Finance Minister Thangam Thennarasu on Tuesday said Tamil Nadu’s fiscal position has come under significant strain due to withheld Union funds, declining central transfers and mandated expenditure commitments, but asserted that the State would remain firmly on the path of fiscal consolidation while sustaining capital investment and expanding credit flow in 2026–27.
Presenting the Interim Budget, the Minister detailed the impact of pending Union government dues on the State’s finances. He said Rs 3,548 crore under Samagra Shiksha, Rs 3,112 crore under the Jal Jeevan Mission and Rs 2,246 crore in Finance Commission Grants remain unreleased. He further noted that despite approval of the Chennai Metro Rail Phase-II project under a 50:50 sharing pattern, nearly Rs 9,500 crore paid towards the Union government’s share continues to be reflected in the State’s outstanding debt due to pending book adjustments.
The Minister pointed to a broader structural decline in central transfers, stating that funds received from the Union government as a percentage of GSDP have fallen from 3.41 per cent in 2016–17 to 2.16 per cent in Revised Estimates 2025–26. In current GSDP terms, this reduction translates into a loss of Rs 44,598 crore to the State, almost 41 per cent of the estimated Fiscal Deficit for 2025–26.
On the deficit position, Thennarasu said the Revenue Deficit for 2025–26 (Revised Estimates) has widened to Rs 69,219 crore from Rs 41,635 crore projected in the Budget Estimates, largely due to GST rate rationalisation, withholding of centrally sponsored scheme funds and Union-mandated transfers including loss funding to TNPDCL and contributions to the Guarantee Redemption Fund. For 2026–27, the Revenue Deficit is projected to moderate to Rs 48,696 crore. The Fiscal Deficit for 2026–27 is estimated at Rs 1,21,949 crore, with the deficit-to-GSDP ratio pegged at 3 per cent in line with the Tamil Nadu Fiscal Responsibility Act. Outstanding debt, excluding the Metro Phase-II accounting component, is estimated at Rs 10,62,248 crore in 2026–27, with the debt-to-GSDP ratio projected at 26.12 per cent. The State plans to borrow Rs 1,79,809.65 crore during the year and repay Rs 60,413.42 crore.
Total Revenue Receipts for 2026–27 are estimated at Rs 3,44,575 crore. State’s Own Tax Revenue is projected at Rs 2,29,579 crore, while the share in central taxes is estimated at Rs 62,531 crore. Grants-in-aid are expected at Rs 24,762 crore, anticipating release of pending funds.
Despite fiscal constraints, the Minister emphasised that capital spending would continue to expand. Capital Expenditure for 2026–27 has been pegged at Rs 59,561.72 crore, marking a 15.78 per cent increase over Revised Estimates. The total capital outlay including net loans and advances is estimated at Rs 73,270 crore, reflecting the government’s continued focus on infrastructure-led growth.
Highlighting fiscal management reforms, Thennarasu said a Special Task Force examined nearly 11 lakh bank accounts across departments and mobilised Rs 12,078 crore of idle funds, which have since been redeployed for infrastructure development. The Tamil Nadu Public Fund Tracking System has been implemented across 101 major schemes in 32 departments to ensure just-in-time fund release and reduce interest costs.
In a significant policy thrust, the government has set a target of Rs 11 lakh crore in priority sector lending for the coming financial year. Describing Tamil Nadu’s credit economy as nearly three times the size of the State Budget, the Minister underscored the importance of institutional credit in driving inclusive growth across MSMEs, agriculture and small enterprises.
He said the State remains committed to fiscal consolidation, with the Fiscal Deficit-to-GSDP ratio projected to decline to 2.80 per cent by 2028–29. Even amid revenue pressures and pending Union dues, he maintained that the government’s calibrated strategy, focused on revenue efficiency, disciplined borrowing, liquidity optimisation and sustained capital investment, would ensure that Tamil Nadu continues on a stable and growth-oriented fiscal trajectory.