Tamil Nadu's fiscal reforms highlight zero-based budgeting and performance governance
Contents4
The Hindu - Opinion · 20 Aug 2026 · 2 min read
Prelims · Polity Mains · GS2 Governance High relevance
Tamil Nadu's new government emphasizes fiscal discipline through zero-based budgeting and performance-based expenditure, addressing high debt and revenue deficits without immediate tax hikes.
Key points
Tamil Nadu faces a challenging fiscal position with high debt, revenue account deficit, and limited fiscal space due to salary, pension, welfare, and interest payments.
Zero-based budgeting is proposed to ensure allocations justify their continuation annually, moving away from automatic carry-overs from previous budgets.
CAG audit revealed ₹33,302.53 crore underspend in 2023-24 and ₹1,078 crore in unnecessary supplementary provisions, highlighting inefficiencies in budget execution.
Performance-based budgeting focuses on outcomes (e.g., km of roads built, households with piped water) rather than mere expenditure, transforming accounting into a management tool.
Revenue augmentation prioritizes improving GST compliance (₹1,538.18 crore flagged in irregularities) over new taxes, as recommended by the Montek Singh Ahluwalia-led committee.
[GS3-Economy] The fiscal deficit and debt management strategies in Tamil Nadu reflect broader challenges in state finances, relevant to GS3's economic growth and development topics.
Transparent competition in contracts, like Chennai's road-restoration project, reduced costs by 25.9%, demonstrating fiscal efficiency without new taxes.
Expenditure Reforms Committee will review scheme impacts to ensure resources reach beneficiaries, aligning with GS2's governance and accountability themes.
Way Forward: Tamil Nadu should institutionalize zero-based and performance-based budgeting across departments, enhance GST compliance mechanisms, and publish comparative performance metrics with other states to drive efficiency.
Key terms
- Zero-based budgeting
- A budgeting method where all expenses must be justified for each new period, starting from a 'zero base.' For UPSC, it’s significant as a governance reform tool to eliminate wasteful expenditure and improve fiscal discipline, aligning with GS2's public administration and GS3's fiscal management topics.
- Performance-based budgeting
- An approach linking funding to measurable outcomes rather than inputs. Relevant for UPSC as it enhances accountability in public spending, a key theme in GS2 (governance) and GS3 (economic development).
- Comptroller and Auditor General (CAG)
- India's supreme audit institution under Article 148 of the Constitution, responsible for auditing government expenditures. Its reports are critical for GS2's transparency and accountability discussions.
- Goods and Services Tax (GST)
- A unified indirect tax system introduced in 2017 under the 101st Constitutional Amendment. For UPSC, GST compliance issues highlight intergovernmental fiscal coordination (GS2) and economic reforms (GS3).
Practice question
Discuss the significance of Tamil Nadu's fiscal reforms, particularly zero-based budgeting and performance-based governance, in addressing the state's fiscal challenges. (250 words, 15 marks)
GS2 15 marks 250 words Mains
Key terms to include: Zero-based budgeting Performance-based budgeting Comptroller and Auditor General (CAG) Goods and Services Tax (GST) Fiscal deficit Revenue deficit Expenditure Reforms Committee Transparent competition
Answer framework
Introduction
Briefly introduce Tamil Nadu's fiscal challenges (high debt, revenue deficit) and the need for reforms like zero-based budgeting (ZBB) and performance-based governance.
Zero-based budgeting (ZBB)
Ensures annual justification for allocations, preventing automatic carry-overs and wasteful expenditure.
Addresses inefficiencies highlighted by CAG audit (e.g., ₹33,302.53 crore underspend in 2023-24).
Performance-based governance
Links funding to measurable outcomes (e.g., km of roads built, households with piped water), enhancing accountability.
Transforms budgeting from an accounting exercise to a management tool for efficient resource use.
Revenue augmentation without tax hikes
Focuses on improving GST compliance (₹1,538.18 crore irregularities flagged) rather than imposing new taxes.
Demonstrates fiscal efficiency through transparent competition (e.g., 25.9% cost reduction in Chennai road-restoration project).
Broader implications
Aligns with GS2 themes of governance and accountability (e.g., Expenditure Reforms Committee for scheme impact review).
Relevant to GS3's fiscal management and economic development topics, offering a model for other states.
Conclusion
Suggest institutionalizing ZBB and performance metrics across departments, enhancing GST compliance, and publishing comparative state performance data to sustain reforms.
Fact check
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