Tamil Nadu’s decade of debt: CAG warns of mounting repayment pressures

Tamil Nadu’s public debt has ballooned by more than 300 percent over the last decade, creating intense repayment pressures that are forcing the state to rely heavily on fresh loans to service its older ones.

According to the latest report on state finances by the Comptroller and Auditor General (CAG) of India, the state's total outstanding public debt surged from ₹1,94,096 crore in 2015-16 to ₹7,94,107 crore in 2024-25. That represents a 309 percent leap in just ten years, with a 15.16 percent spike recorded in the last fiscal year alone.

The audit paints a sobering picture of how Tamil Nadu manages its finances. Internal debt—which includes market loans and borrowings from financial institutions—multiplied nearly 3.7 times over the decade. Yet, the cost of repaying that debt climbed even faster, growing by 6.7 times over the same period.

Ideally, governments borrow money to build infrastructure, schools, and hospitals—investments that generate long-term economic returns. Instead, the CAG found that Tamil Nadu is spending a major chunk of its borrowed cash on daily running costs and debt servicing.

Where the money is going

In the audited year of 2024-25, 34 percent of borrowed funds went toward revenue expenditure, which covers current consumption like salaries and subsidies. Another 28 percent was used simply to repay existing debt. This left only a minor portion of borrowings for capital creation.

Interest payments of ₹48,852 crore actually outstripped principal repayments of ₹38,470 crore during the year. The cost of servicing this debt now devours more than a fifth—21.18 percent—of the state's total revenue receipts.

"Using borrowed funds for meeting current consumption and repayment of interest on outstanding loans is not a healthy trend," the CAG pointed out.

The looming short-term squeeze

The financial pressure is set to tighten. Around 43 percent of the state’s outstanding debt is scheduled for repayment within the next seven years. The auditor warned that this short-to-medium-term hurdle is highly likely to trigger liquidity pressures, forcing the government to rely heavily on fresh borrowings during those years.

To steady the state's fiscal position, the CAG recommended expanding the tax base, rationalising subsidies, controlling the growth of salaries and pensions, and monetising idle government assets.

Weather pressures compound challenges

As the state grapples with these structural fiscal challenges, it is also facing immediate pressure on the ground from an unusually dry season.

The Southwest Monsoon has remained weak across southern India this year, partly due to active El Niño conditions. Regional weather officials say Tamil Nadu has recorded an overall rainfall deficit of 26 percent since June 1, receiving just 18.1 cm of rain.

While coastal areas like Chennai have seen some relief from cloud cover, interior districts have sweltered under unseasonable heat, with Tiruchi recently recording a maximum temperature of 39.5 degrees Celsius. Weather forecasters expect scattered rain to continue across parts of the state until September 16, but with the monsoon nearing its official end, the dry spell has already left its mark on the region.