CHENNAI — Amid growing concerns over Tamil Nadu's mounting public debt, the state government's economic consultant has pinpointed a crucial threshold: 23% of gross state domestic product represents sustainable borrowing levels for the southern state.

Key facts:

  • Current debt-GSDP ratio: 27%
  • Sustainable level recommended: 23%
  • Only 3 Indian states below 20% threshold
  • 9 states have higher ratios than Tamil Nadu

The debt dilemma

K.R. Shanmugam, economic consultant to the Tamil Nadu government, makes a nuanced case for responsible borrowing. He acknowledges that debt itself isn't the enemy—it's how the money gets used that matters most.

"When borrowed funds are invested in productive assets and infrastructure that generate economic growth and future income, the government will be able to service its debt with increased income," Shanmugam observes. "In such a case, the debt is not at all an issue."

The pandemic's lingering shadow

Like most Indian states, Tamil Nadu saw its debt ratio surge during COVID-19's devastating sweep. The numbers tell a sobering story: from 22.78% in 2019-20 to 28.67% the following year. Despite gradual improvement, the ratio continues hovering between 26-28%—well above what economists consider prudent.

Shanmugam expresses particular concern about how borrowed money gets spent. Nearly half currently funds consumption rather than investment, with revenue deficit sitting at 1.4% of GSDP.

The path to stability

Reaching that sustainable 23% marker won't happen overnight. Shanmugam outlines two potential trajectories: gradual improvement by 2050-51 with 15% annual growth and maintained 3% fiscal deficit, or accelerated progress by 2033-34 with tighter fiscal controls.

The economist strongly advocates for expenditure rationalization, suggesting the government should "not hesitate to drop outdated and unproductive welfare schemes." He specifically cautions against implementing promised increases to women's assistance programs until fiscal consolidation is achieved.

His message carries particular weight given Tamil Nadu's relatively strong position—only Gujarat, Odisha, and Maharashtra maintain debt ratios below 20%, while nine states struggle with even higher burdens than Tamil Nadu currently faces.