CAG Flags Rising Interest Burden, Dip in Tamil Nadu’s Capital Spending in FY24

The Comptroller and Auditor General (CAG) of India’s latest report on Tamil Nadu’s FY24 finances, released on October 18, 2025, lauded the state’s sustainable debt-to-GSDP ratio but issued stern warnings about escalating interest payments, a ballooning revenue deficit, and a sharp decline in capital expenditure. The report criticised the state for diverting borrowed funds toward current consumption and debt servicing rather than investing in infrastructure or developmental projects, a trend that could jeopardise long-term economic growth.

Tamil Nadu’s Gross State Domestic Product (GSDP) grew impressively by 10.92% from Rs 17.43 lakh crore in FY20 to Rs 27.21 lakh crore in FY24, carrying a total debt of Rs 7.62 lakh crore. Despite this growth, the state’s fiscal health is under pressure, with revenue receipts rising only 8.55% while total expenditure climbed 9.89% to Rs 3.59 lakh crore, driven partly by welfare initiatives like the Rs 1,000 monthly Magalir Urimai Thogai scheme for women.

The CAG spotlighted a worrying rise in interest payments, which consumed 17.37% of revenue expenditure in FY24, up from 15.2% in FY20, accounting for 52% of revenue spending alongside salaries and pensions. This squeeze, the report cautioned, limits resources for productive investments and burdens future generations with debt obligations. Capital expenditure growth plummeted from 11.92% in FY22 to a mere 2.45% in FY24, constituting just 11.56% of total outlay—a stark indicator of reduced focus on infrastructure like roads, hospitals, or schools.

The revenue deficit surged 24.59% to Rs 45,121 crore, pushing the fiscal deficit to 3.32%, exceeding the 3% target set by the Tamil Nadu Fiscal Responsibility Bill for FY25. A Rs 20,000 crore shortfall in central grants-in-aid contributed significantly, though it was mitigated by a 45% rise in non-tax revenue and a 22.63% increase in central tax shares.

In response, the Tamil Nadu Assembly passed the Fiscal Responsibility (Amendment) Bill, 2024, on October 17, deferring the zero revenue deficit to FY27 and the 3% fiscal deficit target to March 31, 2026, signalling a pragmatic recalibration amid fiscal constraints. The CAG noted that loans for projects like Chennai Metro Rail Phase II drove borrowing growth, while subsidies rose from 9.57% to 12.19% of revenue expenditure, reflecting a welfare-heavy budget.

The report’s findings align with broader fiscal challenges across Indian states, where post-COVID recovery has strained balances between populist measures and capital creation. Tamil Nadu, a manufacturing hub, remains economically robust, yet the CAG urged prioritising capital projects to sustain growth momentum without over-reliance on debt.

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This fiscal narrative intersects with local economic struggles, as seen in Tamil Nadu’s labour sectors. In Coimbatore’s Valparai Hills, tea estate workers secured a Rs 475 per shift wage hike after intense negotiations, with Rs 4.68 crore in arrears due for 16,000 workers, highlighting the state’s welfare focus. Conversely, Salem’s handloom weavers face production halts due to monsoon-dampened threads, with incomes dropping to Rs 6,000 monthly, underscoring the need for infrastructure support. These ground realities amplify the CAG’s call for fiscal prudence, as Tamil Nadu balances immediate relief with long-term investments to maintain its economic edge in a competitive national landscape.

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