A new Kearney report suggests Tamil Nadu can enhance its fiscal capacity by addressing collection gaps, enforcing stronger compliance, and optimising expenditure, without resorting to higher taxes or borrowing.
Tamil Nadu may have room to ease its fiscal strain without reaching for higher taxes or heavier borrowing, according to a new Kearney report that argues the state is leaving substantial money on the table through weak collection, uneven pricing and loose spending discipline. The consultancy says that closing the gap between Tamil Nadu and better-performing large states could unlock more than ₹1.2 lakh crore a year in fiscal capacity.
The report, titled “Tamil Nadu’s fiscal crossroads”, says the state already generates a large economy, but does not capture enough of it in revenue. It points to the gap between services’ contribution to gross state domestic product and the share that sector contributes to goods and services tax collections, arguing that part of the shortfall reflects compliance gaps as well as the size of the informal economy. Kearney recommends bringing more activity into the GST net and tightening enforcement against leakages.
It also argues that Tamil Nadu could do more on excise revenue by using a differentiated tax structure for alcohol, with higher rates on premium products. In addition, the report calls for stronger reconciliation of Tamil Nadu State Marketing Corporation procurement and sales data through track-and-trace systems. On non-tax revenue, it says stamp duty and registration collections remain held back by stagnant guideline values, while mining receipts could improve if the state used drone or LiDAR surveys to match extraction with billing more accurately.
The wider fiscal backdrop is already under pressure. A Comptroller and Auditor General report cited by econiti.org said Tamil Nadu’s gross state domestic product rose 15.98% in 2024-25, but the revenue deficit widened to ₹45,840 crore, while subsidy spending climbed 39.35%. PRS Legislative Research said the state’s 2025-26 budget projected a revenue deficit of 1.2% of GSDP, or ₹41,635 crore, and a fiscal deficit of 3% of GSDP. Other recent analysis, including a white paper reported by The New Indian Express and a Fiscal Health Index from NITI Aayog, has also pointed to rising liabilities, high interest costs and limited fiscal flexibility.
Kearney’s central argument is that Tamil Nadu does not need to choose between welfare, growth and fiscal prudence. Instead, it says, better collection systems, sharper spending priorities and tighter execution could create enough room to support all three.
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