The newly formed administrations in Tamil Nadu, West Bengal, Kerala, and Assam face a significant challenge: managing their escalating debt levels.
Tamil Nadu’s outstanding debt has surged dramatically, increasing from Rs 2.8 lakh crore in 2016-17 to a staggering Rs 10.6 lakh crore projected for 2026-27. This rise corresponds to an increase in the debt-to-GDP ratio from 21.8% to 26.1% within the same timeframe.
Accompanying this debt escalation are soaring interest payments, which have jumped from Rs 21,449 crore in 2016-17 to a budgeted Rs 78,677 crore for the upcoming fiscal year.
Furthermore, the proportion of interest payments relative to the state’s total revenue has also risen significantly. A decade ago, these payments accounted for 15.3% of Tamil Nadu’s total income. This year, that figure is expected to climb to 22.8%.
The debt situation is similarly concerning in West Bengal and Kerala, as illustrated by recent data. In 2016-17, both states had a debt-to-GDP ratio ranging from 30% to 38%, which has remained stable for West Bengal and increased for Kerala. Currently, nearly 20% of government revenue in both states is allocated to servicing debt interest.
In contrast, the average outstanding debt-to-GDP ratio for all Indian states and Union Territories was estimated at 29.2% for the fiscal year 2025-26, with interest payments consuming only 12.2% of revenue, significantly lower than the figures for Tamil Nadu, West Bengal, and Kerala.
Assam, meanwhile, has experienced a rise in its debt-to-GDP ratio from 17.1% to 25.2% over the past decade. However, its interest payments remain manageable, accounting for less than 10% of the total revenue. This is partly due to Assam’s status as a special category state, which allows it to receive 90% of central funding for projects as interest-free grants, with only 10% as loans.
Regardless of their classification, all states are grappling with unsustainable debt levels, particularly as interest rates continue to rise. For example, on May 5, Tamil Nadu secured a loan of Rs 1,000 crore at an average interest rate of 7.49%, compared to 6.54% for a similar loan the previous year. Currently, states are paying around 7.72-7.73% on 10-year loans, up from 6.7-6.71% last year.
This precarious financial situation may necessitate innovative solutions. The central government could consider restructuring, waiving, or reducing interest on state loans, potentially linking such relief to essential reforms in areas such as electricity pricing, public service charges, and welfare program targeting.
There are also creative approaches to consider. For instance, the Tamilnadu Industrial Development Corporation (TIDCO) holds a 27.88% stake in Titan Company Ltd, surpassing the Tata Group’s combined share. Titan has evolved from its beginnings in watch manufacturing to become a leading lifestyle brand, generating a net profit of Rs 3,337 crore on a total income of Rs 60,942 crore in the fiscal year ending March 31, 2025.
The market value of Titan’s shares is significant, with TIDCO’s stake valued at approximately Rs 1,07,873 crore. If TIDCO were to divest its entire Titan holding, the Tamil Nadu government could raise over Rs 1 lakh crore, effectively reducing its debt by about 10% and resulting in substantial interest savings compared to the dividend received from Titan.
The election manifesto of the Tamilaga Vettri Kazhagam, led by filmstar-turned-politician Vijay, emphasizes a commitment to transforming Tamil Nadu into a “financially self-sufficient state” by addressing the debt issue and seeking new revenue streams.
The potential sale of TIDCO’s Titan stake could serve as a vital source of income, facilitating debt repayment and freeing up funds for critical areas such as infrastructure, health care, education, agricultural research, and targeted welfare initiatives.
Other states are also challenged to discover new revenue sources to alleviate their persistent debt burdens.
Harish Damodaran serves as the National Rural Affairs & Agriculture Editor for The Indian Express. With over 33 years of experience in reporting on agri-business and macroeconomic policy, he has previously worked with the Press Trust of India and The Hindu Business Line.
