Beyond Fault Lines: Tamil Nadu’s Lessons from CAG and PFPI
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Discover how short-term transparency, medium-term structural discipline, and long-term welfare redesign can secure Tamil Nadu’s industrial-powerhouse status while preventing fiscal fragility.
By P SESH KUMAR
NEW DELHI, September 30, 2025 —Tamil Nadu’s fiscal story is no secret. Anyone in Fort St. George’s finance department or the corridors of power knows the state’s books are under strain: subsidies for power and agriculture balloon, salaries and pensions eat into flexibility, and deficits recur with unnerving regularity.
Tamil Nadu even boasts one of the country’s most advanced IT-enabled financial management systems, spitting out dashboards that rival any CAG table. So why should a decadal CAG publication or AJNIFM’s Public Financial Performance Index (PFPI) matter? Because they turn insider whispers into public evidence, benchmark Tamil Nadu against its peers, and create political and media costs for ignoring structural stress.
They do not reinvent the wheel, but they change who gets to see the wobble. The question then becomes not whether risks are known, but whether solutions are politically palatable and administratively feasible.
Tamil Nadu cries for phased reforms: short-term transparency, medium-term structural discipline, and long-term welfare redesign. Only then can Tamil Nadu continue to wear its industrial-powerhouse crown without becoming fiscally brittle.
Known Known: The Bureaucratic View
Inside Tamil Nadu’s bureaucracy, fiscal pressure points are well mapped. The finance department’s integrated treasury and budget MIS gives real-time reports on receipts, expenditure, and liabilities. White papers on state finances have long flagged the three iron chains: salaries, pensions, and interest. Add to that the long-running power subsidies and farm sector freebies, and you have what economists call a “soft budget constraint.”
None of this is news to the mandarins or the political establishment. The 15th Finance Commission itself highlighted Tamil Nadu’s challenges in capital outlay shortfalls, PSU losses, and subsidy intensity.
IMF technical assistance reports also noted that the state often met FRBM targets by deferring expenses or shifting liabilities off-budget. In other words, the risks are visible and tracked internally.
What CAG and PFPI Add
So what’s new? The CAG’s decadal “State Finances” and AJNIFM’s PFPI 2023–24 do three things Tamil Nadu’s internal systems rarely achieve:
Comparative Benchmarking: PFPI gives Tamil Nadu a score of 0.493 (rank 12/18), placing it mid-table, behind states it considers fiscal lightweights. For a political class that trades on reputation, this external ranking is a reputational sting.
Structured Diagnosis: PFPI disaggregates fiscal health into six pillars-resources, expenditure quality, deficit, debt, contingent liabilities, and profligacy. Tamil Nadu scores decently on resource mobilisation (0.700, rank 7), but poorly on deficit management (0.432, rank 12) and profligacy (0.459, rank 15). That structure forces policymakers to confront weak spots they can’t camouflage by citing total GSDP or revenue size.
Public Pressure: A CAG report or PFPI score is not just a ledger—it is ammunition for journalists, opposition leaders, rating agencies, and academics. Once published, it becomes politically costly to deny subsidy burdens or hide off-budget borrowings.
In short, these reports don’t tell bureaucrats anything radically new-but they change the political economy of reform by widening the audience for uncomfortable truths.
Uttar Pradesh Grabs Fiscal Headline Comfort and Hides Fragility
Palatability and Feasibility of Reforms
Here lies the real rub: Recommendations such as pruning subsidies, protecting capital outlay, or rationalising guarantees sound sensible, but they face political gravity. Welfare in Tamil Nadu is not a side-note; it is a political identity. No government, whether AIADMK or DMK, can openly dismantle free electricity to farmers or cash transfer schemes without risking electoral backlash.
Yet comparative practice shows reforms are possible if sequenced cleverly: Gujarat retained power subsidies but restructured tariffs by slabs, ensuring high-consuming farmers paid more.
Maharashtra used 50-year central capex loans to keep infrastructure spending safe while running cash-transfer schemes.
Karnataka added e-KYC to weed out duplicate beneficiaries in its “guarantees,” saving crores without headline cuts.
The lesson is not to axe welfare but to target it, limit its sprawl, and protect capital spending alongside. Politically, this is palatable if reforms are framed not as cuts but as leak-plugging and fairness. Bureaucratically, it is feasible because Tamil Nadu’s IT-enabled systems can operationalise targeting and dashboards faster than most states.
The Real Way Forward
Short-term (6–12 months)
Publish a Guarantee and Contingent Liability Statement, listing risks from power and PSU debts.
Mandate a Quarterly Fiscal Dashboard for public release, turning the internal MIS into external transparency.
Cap new welfare schemes at “pilot” scale unless fully budgeted.
Medium-term (1–3 years)
Legislate a capital expenditure floor (say 15% of net spending), immune to mid-year raids.
Introduce sunset clauses and periodic review for subsidies, forcing the Assembly to re-authorise them.
Use central loans and swaps to refinance short-term debt and smooth the maturity wall.
Long-term (3–7 years)
Recast subsidies into outcome-linked transfers (nutrition, school attendance, energy efficiency).
Create a Fiscal Discipline: Commission to pre-scrutinise big-ticket welfare or guarantee proposals.
Expand local body revenues (property tax, user charges) so the state treasury is not the sole welfare funder.
These steps do not eliminate welfare politics, but they build discipline around it.
Tamil Nadu Must Act Before Sunset
Tamil Nadu is not a failing state; it is a fiscally strained state in denial. Its bureaucracy knows the risks, its politicians understand the arithmetic, and its IT systems already measure the slide. What the CAG decadal audit and AJNIFM’s PFPI do is make the denial harder by putting comparative, public, structured numbers on the table. The real challenge is not awareness but action. And action will only come when reforms are framed as fairness, not austerity; as leak-proofing, not cutting; as investment protection, not anti-welfare. Tamil Nadu can still widen its fiscal ledge—but only if it accepts that reputation is not the same as resilience.
(This is an opinion piece, and views expressed are those of the author only)
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