TN’s Robust GSDP Expansion to 15.98 % Not Match Revenue Growth: CAG

The CAG recommended the government to strengthen own-revenue mobilisation, contain committed expenditure, improve the quality of capital spending, enhance returns from public investments, and expedite the recovery of loans and advances. “The government may also take sustained measures to strengthen revenue realisation and address the accumulation of arrears in view of the continued revenue and fiscal deficits. Sustained fiscal consolidation, coupled with a reorientation towards growth-enhancing and revenue-generating expenditure, will be critical for ensuring the state’s long-term fiscal sustainability and economic resilience”, the report said.

The CAG report released on Tuesday said the state’s economy exhibited robust growth, with the GSDP expanding by 15.98 per cent as against 13.34 per cent in the previous year, driven by both tertiary and secondary sectors. Revenue receipts increased to Rs. 2,82,829 crore, but their growth (6.89 per cent) lagged significantly behind GSDP growth, resulting in subdued revenue buoyancy.

Despite a decline in grants-in-aid from the Indian government by 34.86 per cent, the impact on revenue receipts was partly cushioned by an increase in the State’s share of Union taxes (13.93 per cent) and growth in Own Tax Revenue (7.74 per cent). This helped moderate the overall effect of reduced central transfers. In addition, the government released the entire funds recommended by the Sixth State Finance Commission to Local Bodies during the first three years of the award period, underscoring its commitment to decentralised governance.

The State’s finances during 2024-25 reflect a paradox of strong economic growth alongside persistent fiscal stress. While deficit levels and debt ratios remain within prescribed limits, the underlying fiscal structure is characterised by weak revenue buoyancy, high committed expenditure, increasing subsidy dependence and sub- optimal utilisation of borrowings.

The State recorded a revenue deficit of Rs. 45,840 crore (1.47 per cent of GSDP) and a fiscal deficit of Rs. 1,01,344 crore (3.25 per cent of GSDP), “both largely within budgeted levels but indicative of persistent structural imbalances”, the report noted.

The report said “the State consistently outperformed the national average in per capita income, which indicates that the state has a strong and more resilient economy”. Although the fiscal deficit marginally exceeded the three per cent threshold prescribed under the Tamil Nadu Fiscal Responsibility Act, it declined from 3.36 per cent in 2023-24 and has shown a moderating trend over the past five years, indicating gradual fiscal consolidation. Outstanding liabilities increased to Rs. 8,53,765 crore. However, the debt-GSDP ratio at 27.38 per cent remained within the limit prescribed by the Fifteenth Finance Commission.

Despite these positive developments, several areas warrant closer attention. revenue mobilisation remained weak, as reflected in own-tax buoyancy ratio remaining below unity, indicating that revenues did not keep pace with economic growth.

A significant portion of borrowings was utilised for debt servicing rather than for creating capital assets, thereby constraining resources available for long-term development. The State relied predominantly on own tax and non-tax revenues, which together constituted about 76 per cent of revenue receipts, demonstrating a reasonable degree of fiscal autonomy. Budgetary management continued to exhibit gaps between estimates and actuals.