Tamil Nadu’s Finance Minister, Thangam Thennarasu, unveiled the state budget for the fiscal year 2025-26 on Friday. This budget, marking the last comprehensive proposal before the Assembly elections scheduled for 2026, combines welfare initiatives with expansive infrastructure development plans. The budget increases funding for ongoing programs that support women and promote higher education, continuing the DMK government’s commitment to social justice. A significant move included the restoration of encashment for earned leave for over 10 lakh state government employees, which had been suspended during the COVID-19 pandemic.
The budget projects a real Gross State Domestic Product (GSDP) growth rate of 9% and a nominal GSDP growth rate of 14.5% for FY25. For FY26, the fiscal deficit is estimated at ₹1,06,963 crore, which would constitute 3% of GSDP, an increase from the revised estimate of ₹1,01,698 crore (3.26% of GSDP) for FY25. Despite this increase, the deficit is still projected to remain within the 3% limit for FY26.
The revenue deficit for FY26 is projected at ₹41,634.93 crore, down from ₹46,467.5 crore in the previous fiscal year. Following a steady downward trend since 2020-21, the revenue deficit is now expected to be 1.17% of GSDP, approaching levels not seen since 2015-16.
Total revenue receipts for 2025-26 are estimated to reach ₹3,31,569 crore, reflecting a 12.81% increase compared to ₹2,93,906 crore in 2024-25. Approximately 75.3% of these receipts will come from the state’s tax revenues, which are anticipated to grow by 14.6% in 2025-26. T. Udhayachandran, Principal Secretary of Finance for Tamil Nadu, noted robust increases in revenues from stamp duty, GST, and motor vehicle taxes, although growth in VAT and excise taxes on fuel and liquor has been sluggish.
Addressing the state’s persistent debt levels, the finance secretary emphasized the importance of assessing debt through the lens of the debt-to-GDP ratio. The revised outstanding debt-to-GSDP ratio for 2024-25 stands at 26.43%, slightly up from the previously projected 26.41% due to updated GSDP figures. However, this ratio is expected to decline to 26.07% in FY26, remaining well below the 15th Finance Commission’s established threshold of 28.70%.
The budget reaffirms its dedication to capital expenditure, allocating ₹57,231 crore for FY26, an increase of 22.38% from the revised estimate of ₹46,766 crore for FY25. The focus is on developing emerging sectors, such as semiconductors, technical textiles, biosciences, space technology, and the animation and visual effects industry, to ensure economic growth in the context of global trade challenges.
In his speech, the finance minister highlighted that the union government has withheld ₹2,152 crore in education funding due to the state government’s firm stance on the three-language policy, leading the state to independently finance school education.
Udhayachandran remarked on the state’s growth rate exceeding the national average, indicating a positive trend. He emphasized the need to prioritize emerging sectors and high-value industries to sustain competitiveness amid global economic changes.
