The state's own tax revenue is projected to grow by 14.6 percent in 2025-26, reaching ₹2,20,895 crore, according to the state budget estimates.
Published Mar 14, 2025 | 4:37 PM ⚊ Updated Mar 14, 2025 | 4:37 PM
Synopsis: Tamil Nadu Finance Minister Thangam Thennarasu, in his 2025-26 budget presentation, outlined the state’s increasing tax revenue, fiscal deficits, and financial challenges due to reduced Union grants and tax devolution. Despite these constraints, Tamil Nadu’s economic and fiscal outlook for the current financial year remains positive.
The Tamil Nadu Economic Survey 2024-25 presented the state as one of India’s most economically advanced and resilient, crediting the Dravida Munnetra Kazhagam (DMK)-led government for its significant progress in improving financial health despite growing fiscal challenges.
Finance Minister Thangam Thennarasu, in his 2025-26 budget presentation in the state assembly, built on this positive outlook, detailing Tamil Nadu’s revenue sources, fiscal deficits, and economic trajectory.
At the same time, he also stressed the severe impact of declining allocations from the Union government on key infrastructure projects and disaster relief efforts.
This is particularly notable given Tamil Nadu’s disproportionate contributions to the Union government, with the state receiving significantly less in tax devolution and financial assistance than it generates.
The state government, therefore, reiterated its call for a more equitable fiscal distribution, emphasising Tamil Nadu’s critical role in India’s economic growth and industrial output.
Tamil Nadu’s tax revenue is projected to grow by 14.6 percent in 2025-26, reaching ₹2,20,895 crore, according to the state budget estimates.
This follows a revised estimate of ₹1,92,752 crore for 2024-25, which is slightly lower than the initial projection of ₹1,95,173 crore in the budget estimates for the same year.
The increase in revenue is attributed to economic growth and improvements in tax collection efficiency.
The largest share of the projected revenue – ₹1,63,930 crore – will come from commercial taxes, followed by ₹26,109 crore from stamps and registration, ₹13,441 crore from motor vehicle taxes, and ₹12,944 crore from state excise.
Despite this steady increase in the state’s revenue, Tamil Nadu’s financial position is impacted by a decline in transfers from the Union Government, which have reduced significantly over the years.
Among the most pressing challenges faced by Tamil Nadu is its dwindling share of transfers from the Centre. According to the revised estimates for 2024-25, grants-in-aid from the Union Government are expected to drop to ₹20,538 crore, down from the ₹23,354 crore projected in the original budget estimates.
The decline has been compounded by the withholding of funds under schemes such as Samagra Shiksha Abhiyan and the absence of financial support under the National Disaster Relief Fund (NDRF) for disasters, including Cyclone Fengal and the unprecedented rainfall in the southern districts.
The state’s share in central taxes remains another area of concern. While the revised estimate for 2024-25 stands at ₹52,491 crore, up from the budgeted ₹49,755 crore, Tamil Nadu’s allocation continues to be disproportionately low despite its significant contribution to the national economy.
Tamil Nadu accounts for approximately 9 percent of India’s gross domestic product and 6 percent of the country’s population, yet its share in central taxes is only 4 percent.
The DMK has criticised this disparity, alleging deliberate injustice by the Union Government.
The reduction in transfers from the Centre has severely impacted Tamil Nadu’s finances, with funds from the Union Government as a percentage of the Gross State Domestic Product (GSDP) steadily declining.
From 3.41 percent of GSDP in 2016-17, transfers from the Centre have dropped to just 1.96 percent in the revised estimates for 2024-25.
In absolute terms, this decline represents a loss of ₹45,182 crore, accounting for nearly 44.43 percent of Tamil Nadu’s projected fiscal deficit for the same period.
The financial shortfall is particularly challenging given the rising expenditure needs in crucial sectors such as education, healthcare, infrastructure, and social welfare.
Despite these fiscal pressures, the state government has taken measures to manage its finances prudently.
Tamil Nadu has made significant progress in improving its fiscal management despite external financial constraints.
The state’s revenue deficit for 2024-25 is projected to decline to ₹46,467 crore in the revised estimates, down from the ₹49,279 crore initially estimated in the budget.
This reduction reflects the government’s efforts to control non-development expenditure and enhance fiscal discipline. The revenue deficit is expected to decrease further to ₹41,635 crore in the budget estimates for 2025-26, indicating a positive trend toward fiscal consolidation.
Similarly, the fiscal deficit for 2024-25 is projected to be reduced by ₹6,992 crore to ₹1,01,698 crore in the revised estimates, compared to ₹1,08,690 crore in the budget estimates.
This reduction has been achieved despite a downward revision in the state’s Gross State Domestic Product (GSDP).
As a percentage of GSDP, the fiscal deficit is expected to decline from 3.44 percent in the original estimates for 2024-25 to 3.26 percent in the revised estimates. For 2025-26, the budget estimates project a further decline to ₹1,06,963 crore, or 3 percent of GSDP.
(Edited by Dese Gowda).
