The Kearney study recommends measures to improve the fiscal capacity of Tamil Nadu

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With a revenue deficit of ₹ 78,324 crore, an outstanding debt of over ₹ 10,000,000 and a tax-to-GSDP ratio of 5.45%, Tamil Nadu’s main problem is not that it is borrowing too much; it’s that it collects and spends less efficiently than comparable large states, says a recently released Kearney report on ‘Tamil Nadu’s Fiscal Crossroads’.

“Conservatively estimated, narrowing this gap can increase annual fiscal capacity by more than ₹1.2 trillion, without new taxes or additional borrowing, through better compliance, pricing, monitoring and project discipline,” the report said.

“The opportunity is not just to reduce the deficit, it is to restore the state’s ability to confidently invest in the infrastructure, human development and competitiveness that its next phase of growth requires,” the study adds. Better revenue collection, sharper prioritization and more disciplined implementation can create an enabling environment for financing growth, prosperity and fiscal prudence.

Message recommendations

Based on a study of Tamil Nadu’s GST collection, revenue from excise duty, stamp duty and registration fees, mining royalty and revenue, subsidy-in-aid and revenue and capital expenditure, the report recommends setting targets for the state government for the first year for GST compliance, guideline-value revision, grant drawdown, mining alignment, procurement competition and capital project readiness to link to delivery.

Tamil Nadu’s GST to GSDP ratio is the lowest compared to Maharashtra, Gujarat and Karnataka. The combination of a large, relatively affluent consumer base, paired with the weakest implementation of GST among peers, points to a meaningful opportunity to increase collections, both by bringing a larger share of economic activity into the formal, GST-compliant fold and by tightening enforcement against existing evasions rather than raising rates.

Revisions to Tamil Nadu’s statewide guidelines were made in 2002, 2007, 2012 and 2017, with more coming into effect on 2 July 2024. Meanwhile, the across-the-board increase was struck down by the Madras High Court in January 2024 and the state switched to a “composite value” system. States that combine regular benchmark revision with finer geographical granularity and use of actual registered transaction data appear to maintain a more stable stamp duty to GSDP ratio over time. Consistent enforcement of below-recommended recommendations will be as important as the cadence of revisions itself, the study said.

In terms of excise revenue, the study said that allowing wider availability of premium and semi-premium alcohol products, along with a significant and higher rate of excise duty on these categories, will allow Tamil Nadu to collect more revenue from consumers already trading without increasing overall consumption.

As far as mining revenue is concerned, the state can directly rationalize rates for minor minerals. For other minerals, its most immediate avenues are accurate measurement, transparent auctions and grading, and yield, rather than measure itself.

“There are significant opportunities to improve procurement efficiency through better competition leading to better price discovery. The state has also been slower than other states in mobilizing private capital through PPP projects, specifically in infrastructure,” the study said.

Published – 18 Sep 2026 13:21 IST