The Centre has started to use the levers at its disposal to bring about greater accountability in States and make State Budgets more transparent. This much is evident from the Tamil Nadu Budget for 2024-25. The State was forced to provide ₹17,117 crore for funding the loss of TANGEDCO, its power utility arm, from its budget for 2023-24 and provide ₹14,442 crore for this expenditure in the next fiscal year. Failure to provide would have led to a like amount being deducted from the State’s borrowing ceiling fixed by the Centre. Besides, the 15th Finance Commission has also allowed States to increase their fiscal deficit by another 0.5 per cent of GSDP in addition to the 3 per cent, on implementing the required reforms in the power sector.

The provision has expanded the fiscal deficit for FY24 to 3.45 per cent of GSDP compared to the budgeted figure of 3.25 per cent, causing a fiscal slippage. The fiscal deficit for FY25 is also elevated at 3.44 per cent of GSDP owing to this allocation. While the Tamil Nadu Finance Minister Thangam Thennarasu was critical of the Centre for trying to “stifle our State by exercising arbitrary and discriminatory control over our finance,” such actions appear necessary to instil fiscal discipline and transparency in State budgets. TANGEDCO carries an accumulated loss of ₹1,50,000 crore and its operations are being funded through loans which are guaranteed by the State government; these are contingent liabilities for the government. The debt accumulated by TANGEDCO currently stands at ₹1,60,000 crore, but it does not form part of the State government borrowing.

Tamil Nadu is struggling to control its revenue expenditure, thanks to the large outgo on salaries and pension, which amount to ₹1,22,594 crore for FY25, accounting for almost 28 per cent of its total expenditure. The increasing interest payment on its large outstanding debt of ₹8.33-lakh crore, along with the announcements of new social welfare schemes, has resulted in increasing the revenue expenditure by 9.7 per cent in FY25, compared to the revised numbers for FY24. The State is having to cut back its capital expenditure to fund revenue spends. The capex for FY24, according to revised estimate, was 4.5 per cent lower than the budgeted figure. This does not augur well for development.

Some of the assumptions behind the budget numbers do appear optimistic. The budget estimates nominal GSDP growth at 15.89 per cent for FY25. Although Tamil Nadu is growing faster than the national average, the estimate is far higher than the 10.5 per cent nominal GDP growth projected by the Union Budget for the same period. The GSDP growth assumption was similarly stretched in the budget estimate for FY24 too, and the finance minister conceded that the GSDP growth for FY24 had to be revised lower. Rosy growth and revenue estimates do not add to a budget’s credibility.