State targets sharper fiscal consolidation; deficit to fall to 3% of GSDP in 2026-27

In the Tamil Nadu Interim Budget Estimates for 2026-27, the fiscal deficit is estimated to reduce to 3.00 per cent of GSDP, showcasing the Tamil Nadu government’s commitment to the path of fiscal consolidation despite several challenges faced on the economy and fiscal fronts, said State Finance Minister Thangam Thenarasu.

In the forthcoming years, Fiscal Deficit to GSDP ratio is projected to be 2.89 per cent in 2027-28 and 2.80 per cent in 2028-29, which are within the targets fixed under Tamil Nadu Fiscal Responsibility Act 2003, he said.

Revenue deficit 

The Revenue Deficit in the Interim Budget Estimates for 2026-27 is estimated at ₹48,696 crore.

In view of the revenue augmentation measures including improvement in tax administration and collection efficiency, the Revenue Deficit is expected to reduce to ₹42,964 crore in 2027-28 and subsequently reduce further to ₹35,115 crore in 2028-29. This will create additional space for capex in the State, he said.

Borrowings

The estimates for receipt and repayment of borrowings have been finalised on the basis of overall borrowing ceiling fixed by the Centre.

The State government plans to borrow a total amount of ₹1.79 lakh crore during 2026-27 and make repayment of ₹60,413.

As a result, the outstanding borrowing as on March 31, 2027 will be ₹10.71 lakh crore. This constitutes 26.35 per cent of GSDP in 2026-27.

However, this includes an amount of ₹9,522 crore, which should reflect in the accounts of the Union Government after the approval of Chennai Metro Rail Phase – II project as a Central Sector Project.

Excluding this amount, the outstanding debt to GSDP is 26.12 per cent in the Interim Budget Estimates 2026-27, he said.

The outstanding debt excluding the loan towards Chennai Metro Rail Project -II as a percentage of GSDP is expected to further reduce to 25.80 per cent in 2027-28 and 25.43 per cent in 2028-29. The State aims to maintain debt sustainability as part of its fiscal consolidation roadmap, he said.

Capex

In the Interim Budget Estimates 2026-27, an amount of ₹59,561 crore is allocated for capex as against ₹51,442 crore in the Revised Estimates 2025-26, which shows an increase of 15.78 per cent.

In line with the Government’s push for capital expenditure, the capital expenditure is projected to be ₹74,452 crore in 2027-28 and ₹93,065 crore in 2028-29. This shows the commitment of the State to constantly improve the allocation for growth-oriented expenditure while maintaining fiscal discipline.

The net loans and advances are estimated at ₹13,708 crore in the Interim Budget Estimate 2026-27. This is projected to increase to ₹16,449 crore in 2027-28 and to ₹19,739 crore in 2028-29 in light of the new Metro Projects that have been announced by the Government, he said.

State’s Own Tax Revenue

The State’s Own Tax Revenue (SOTR) is estimated to be ₹2.06 lakh crore in the Revised Estimates 2025-26. It is estimated to increase to ₹2.29 lakh crore in the Interim Budget Estimates 2026-27 taking into account both the positive impact of improved economic activity on account of trade deals with the US and European Union, and the adverse impact of the GST rate rationalisation exercise done in the previous year, the minister said.

The SOTR is projected to be ₹2.61 lakh crore in 2027-28 and ₹2.98 lakh crore in 2028-29. The growth rates of State’s Own Tax Revenue are estimated to be 14 per cent in 2027-28 and 2028-29.

In the present economic context, Tamil Nadu’s growth rate exceeds that of the national GDP, which is an encouraging development. This relative advantage is anticipated to persist in the forthcoming year, he said.

By undertaking measures such as enhancing resources and improving the efficiency of revenue collection, the State will strive to sustain healthy growth in Revenue Receipts. With fiscal consolidation as its core principle, the State will continue to comply with TNFRA norms, thereby facilitating greater investment and expenditure in areas focused on growth and welfare, he said.

The state’s Overall Outstanding Debt is estimated to be ₹9.52 lakh crore in the Revised Estimates 2025-26 as against ₹9.29 lakh crore in the Budget Estimates 2025-26.

However, this includes an amount of ₹9,523 crore which should reflect in the accounts of the Union Government after the approval of Chennai Metro Rail Phase – II project as a Central Sector Project.

Despite repeated requests, the necessary book adjustment entries have not been carried out by the Union Government leading to an artificial increase in our debt. Excluding this amount, the outstanding debt has been estimated to be ₹9.42 lakh crore in the Revised Estimates and ₹10.62 lakh crore crore in the Interim Budget Estimates 2026-27.

The Outstanding Debt to GSDP ratio (excluding Debt for Chennai Metro Rail Phase II project) in Revised Estimates 2025-26 is estimated to marginally increase to 26.43 per cent as compared to 26.39 per cent in the accounts of 2024-25. In Interim Budget Estimates 2026-27, this ratio is expected to decrease to 26.12 per cent, he said.

Published on February 17, 2026