S. Mala, 38, a casual labourer who hails from Gingee in Villupuram district, says she had, for nearly 20 years, voted for the Dravida Munnetra Kazhagam. But, for this year’s Assembly election, she shifted her allegiance to the Tamilaga Vettri Kazhagam because of a couple of enticing promises: an increase in the monthly honorarium for women to ₹2,500 and free travel for women in inter-district bus services. “I expected that the TVK-led government would implement at least one or both of them this year,” she says.

R. Selvakumar, an Information Technology professional, who hails from Nachipalayam in Tiruppur district, also made a political shift this election — from the AIADMK to the TVK — in the hope that the fledgling party would qualitatively enhance government intervention in education and health. Mr. Selvakumar has a couple of school-going children, and he had hoped that greater attention would be paid to the improvement of infrastructure, both physical and digital, in schools run by the government. “Yes, the government has made a beginning with the Super Clean Super Campus scheme. I wish it had extended the programme to all the schools.”

Though belonging to diverse backgrounds, Ms. Mala and Mr. Selvakumar are not bowled over by the TVK’s maiden Budget — for different reasons.

Opposite stance

Taking a diametrically opposite stance, industries and chambers of commerce have been describing the Budget as progressive with focus on growth and industrial development.

But the situation seems to be that of “willing to strike, but afraid to wound”. On the one hand, the government is conscious of the need for fiscal consolidation. On the other, it wants to honour its election promises, at least the key ones. Both in the White Paper and in the Budget, the government made the right noises.

In the White Paper, the government said, “Correcting it [fiscal deterioration] will require a sustained and disciplined effort across revenue mobilisation, expenditure management, PSU [public sector undertakings] reform, and debt management — an effort that extends well beyond any single Budget cycle. So, the fiscal space available for taking up new programmes during the year can only be very minimal and cutting down on leakages, restoring best practices to weed out corruption, and finding avenues for additional resource mobilisation without burdening the citizens is the only way forward for a sustainable fiscal management.”

In his inaugural Budget speech on August 5, Finance Minister N. Marie Wilson was quite candid. “The fiscal position of the State is in the red, and we have been handed a treasury box that is overburdened with debt and sub-optimal income with leaking holes. The repair has been started, but we would need at least two years to bring the financial administration back to the track of fiscal prudence.”

At the same time, the government does not want to be seen as wavering on its election assurances. On the day he assumed office, Chief Minister C. Joseph Vijay cleared the proposal to increase coverage of the free electricity scheme to 200 units from 100 units for those residential connections that consume up to 500 units bimonthly. For the crop loan waiver, his government first said that only small and marginal farmers with loans up to ₹50,000 each would be covered. Later, it expanded the coverage to ₹75,000, regardless of the size of landholding. The government, which is working on giving a one-gram gold ring to children born at government hospitals after September 15, also announced in the Budget its plan to implement another scheme — ‘Annan Seer’ — to give an eight-gram gold coin and a silk sari to every woman beneficiary.

Relief to rural community

K.R. Shanmugam, the government’s economic consultant and former Director of the Madras School of Economics, points out that the government’s decision to distribute free milch cows to the rural poor will provide relief to the community if this year’s Super El Niño has a severe adverse climate impact.

Notwithstanding the government’s optimism, seasoned specialists feel that the government, aware of the precarious financial health of the State, should not have undertaken to implement schemes such as free electricity for additional 100 units and the crop loan waiver, both of which will cost the exchequer nearly ₹7,480 crore.

As regards the crop loan waiver, the government could have loosened its purse only to those who are in distress and who badly require its assistance, after a thorough study. Particularly, farmers in water-deficit southern districts require preferential treatment. The blanket crop loan waiver could have waited as, after all, the Tamil Nadu Civil Supplies Corporation, during the ongoing procurement year (2025-26), recorded an all-time high purchase of nearly 63 lakh tonnes from around 6.16 lakh farmers. In addition to the minimum support price (MSP) being provided by the Union government, the State gave around ₹917 crore in incentives to the farmers.

Government employees disappointed

The government employees, who had been expecting the TVK government to restore the Old Pension Scheme (OPS), were disappointed, as the allocation for pension and retirement benefits has been reduced by at least ₹11,000 crore (set apart by the previous DMK government in the interim Budget early this year towards an additional contribution to the Tamil Nadu Assured Pension Scheme). There is no hint in the Budget on what the TVK government intends to do with regard to this pension scheme.

Conscious of its financial condition, Mr. Vijay’s government is taking steps to raise resources additionally to the tune of ₹15,000 crore this year through various measures. It has constituted a committee, headed by veteran economist Montek Singh Ahluwalia, to suggest means of revenue augmentation. At the same time, the government knows well that it does not have much freedom to raise resources at will, after the Goods and Services Tax (GST) regime came into force.

Revenue-sharing model

It is in this context that the suggestion made by former Chief Secretary and Finance Secretary of the Tamil Nadu government, K. Shanmugam, in an article published in The Hindu on October 17, 2025, assumes relevance. He suggested that the Centre share with States the personal income tax base on a 50:50 basis. Or, the States can be empowered to top up I-T without major changes to the current system of levy and collection. His point is that this would reduce the States’ fiscal dependence on the Centre, improve liquidity, and allow progressive States — which contribute more tax revenue — to directly benefit from their higher tax base.

The TVK-led government, which relies on the Congress, two Left parties, and the Viduthalai Chiruthaigal Katchi for its survival, does not want to adopt a confrontationist approach towards the Bharatiya Janata Party-led government at the Centre. It knows that the Union government’s support will help to ease the tight fiscal position. It has to not only learn the art of tightrope walking more but also to master it.

Published - August 09, 2026 05:24 am IST