With a revenue deficit of ₹78,324 crore, an outstanding debt exceeding ₹10 lakh crore, and the own-tax-to-GSDP ratio at 5.45%, Tamil Nadu’s core challenge is not that it borrows too much; it is that it collects and spends less efficiently than comparable large States, says a recently released Kearney report on ‘Tamil Nadu’s Fiscal Crossroads’.

“Cautiously estimated, narrowing this gap can add more than ₹1.2 lakh crore of annual fiscal capacity without new taxes or additional borrowing, through better compliance, valuation, monitoring, and project discipline,” the report says.

“The opportunity is not merely to narrow a deficit; it is to restore the State’s capacity to invest confidently in infrastructure, human development, and competitiveness that its next phase of growth demands,” the study added. Better collection of revenue, sharper prioritisation, and more disciplined execution can create a conducive environment to fund growth, welfare, and fiscal prudence.

Based on a study of Tamil Nadu’s GST collections, excise revenue, stamp duty and registration charges, mining royalties and receipts, grants in aid, and revenue and capital expenditure, the report recommends fixing the first-year targets by the State government for GST compliance, guideline-value revision, grant drawdown, mining reconciliation, procurement competition, and capital project readiness, and link departmental accountability to delivery.

Tamil Nadu’s GST-to-GSDP ratio is the lowest when compared to Maharashtra, Gujarat, and Karnataka. A combination of a large, comparatively affluent consumption base, paired with the weakest GST realisation among peers, points to a meaningful opportunity to lift collections, both by bringing a greater share of economic activity into the formal, GST-compliant fold and by tightening enforcement against existing leakages rather than raising rates.

Tamil Nadu’s Statewide guideline revisions were done in 2002, 2007, 2012, and 2017, and the next one took effect on July 2, 2024. Meanwhile, across-the-board increase was struck down by the Madras High Court in January 2024 and the State has moved to a more granular “composite value” system. States that pair periodic revision of guideline value with finer geographic granularity and use of actual registered-transaction data appear to sustain a steadier stamp-duty-to-GSDP ratio over time. Consistent enforcement of registration-below-guideline-value referrals will matter as much as the revision cadence itself, the study said.

On excise revenue, the study said enabling wider availability of premium and semi-premium alchohol products, paired with a distinct, higher excise rate for those categories, will allow Tamil Nadu to capture more revenue from consumers who are already trading up without increasing overall consumption.

As for mining receipts, it said the State can directly rationalise rates for minor minerals. For other minerals, its most immediate avenues are accurate measurement, transparent auctions, and assessment and recovery, rather than the rate itself.

“There are significant opportunities to improve procurement efficiencies through improved competition leading to better price discovery. The State has also been slower compared with other States in mobilising private capital through PPP projects, specifically in infrastructure,” the study said.