As of March 31, 2024, the Tamil Nadu government’s off-budget borrowings reached a substantial ₹3,919.10 crore. These “off-budget” funds are essentially debts taken on by various state public sector entities, where the principal and interest payments are ultimately covered by the State Budget, even though they aren’t directly accounted for in the main budget.
The Comptroller and Auditor General of India’s (CAG) State Finances Audit Report for 2023-24 highlighted that Tamil Nadu’s total liabilities, as defined by the Tamil Nadu State Financial Responsibility and Budget Management Act (TNFR Act), 2003, encompass all obligations under both the Consolidated Fund and the Public Account of the State.
Critically, the report notes that loans acquired by state-owned corporations and agencies for various development projects, where the state government guarantees both principal and interest payments, often remain outside the direct financial statements. This practice, while common, significantly—though indirectly—inflates the state’s overall debt burden.
The CAG data revealed that as of March 31, 2023, Tamil Nadu’s off-budget borrowings totaled ₹2,298.54 crore. Key contributors to this figure included the Tamil Nadu Rural Housing and Infrastructure Development Corporation (₹308.71 crore), the Water and Sanitation Pooled Fund-Tamil Nadu Urban Infrastructure Financial Services Limited (₹380.14 crore), and the Tamil Nadu Water Resources Conservation and River Restoration (₹1,591.53 crore).
During the fiscal year 2023-24, the Water and Sanitation Pooled Fund-Tamil Nadu Urban Infrastructure Financial Services Limited borrowed an additional ₹80.48 crore, and the Tamil Nadu Water Resources Conservation and River Restoration took on another ₹1,591.53 crore in off-budget loans. In a positive move, the State government managed to repay ₹51.45 crore of the borrowings from the Tamil Nadu Rural Housing and Infrastructure Development Corporation.
In an effort to promote greater fiscal discipline and control the rise of off-budget borrowings across states, the Union Ministry of Finance announced a significant policy change starting from FY 2021-22. Borrowings made by state-owned entities, whose principal and/or interest payments are covered by state budgets, assigned taxes, cesses, or other state revenues, will now be included when determining borrowing limits for state governments. This measure aims to prevent states from circumventing the Net Borrowing Ceiling through such indirect means.
Like many other states, Tamil Nadu secures funds by issuing bonds known as State Development Loans (SDLs). These bonds are auctioned by the Reserve Bank of India (RBI) and come with various repayment periods, requiring states to return the principal plus interest upon maturity. For Tamil Nadu, SDLs constitute a significant portion of its total outstanding debt.
The Union government sets a strict borrowing ceiling for each state, capping it at 3% of the projected Gross State Domestic Product (GSDP) for fiscal year 2025-26. States can potentially access an additional 0.5% of GSDP in borrowings, provided they implement reforms in electricity distribution and enhance their intra-state transmission capabilities.
According to the State Budget for 2025-26, the Tamil Nadu government anticipates borrowing a total of ₹1,62,096.76 crore during that year, while also repaying ₹55,844.53 crore. This financial activity is projected to bring the state’s total outstanding borrowings to a staggering ₹9,29,959.3 crore by March 31, 2026.
The CAG report further warns of substantial future obligations, estimating that the state’s interest liability on outstanding market loans will amount to ₹29,159.18 crore annually from 2024-25 onwards. Over the next decade, the principal repayment for these loans is expected to total an immense ₹3,88,202.82 crore.