Tamil Nadu vs Uttar Pradesh debt: Why the comparison is misleading | Let Me Explain 108

After Congress leader Praveen Chakravarthy tweeted this, one economic comparison has been getting a lot of attention.

That, Tamil Nadu’s total debt is now higher than Uttar Pradesh’s.

That this reverses a pattern that held for most of the last decade.

And a narrative is being pushed that it tells a simple story of fiscal failure in one state and discipline in the other.

It sounds straightforward.

More debt looks like irresponsibility. Less debt looks like prudence.

But that story is wrong.

Because debt by itself does not tell you whether an economy is weak or strong.

It does not tell you whether people are doing better or worse.

So let’s look at other data that can give us a better picture. 

Data that can put the debt numbers in the right context. 

Because without that context, the comparison is not just incomplete.

It is misleading.

This isn’t about a contest between Uttar Pradesh and Tamil Nadu

But about how economic numbers are being read out of context.

Let me explain.

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When people hear that a state’s debt has increased, we tend to treat it like a flaw. As if borrowing itself is proof of bad behaviour, fiscal laziness, or economic decline. 

So when a statistic circulates saying that Tamil Nadu’s total debt is now higher than Uttar Pradesh’s, it sounds like a story of failure on one side and discipline on the other.

It sounds simple but it is deeply misleading.

Debt by itself does not tell you how an economy is doing. 

It is just one number, and like most numbers in economics, it becomes meaningful only when you place it in context.

So let's unpack what this comparison actually means and what it leaves out.

Debt is a tool.

Every modern government uses debt to fund investment, to smooth shocks, and to support growth. 

The real question is how much debt exists relative to the size and strength of the economy that must service it.

If I tell you that one person has a loan of 10,000 rupees and another has a loan of 5000 rupees, you still do not know who is financially worse off unless you also know what they earn. 

A person earning 1 lakh rupees a month can manage a 10,000 rupee loan comfortably. A person earning 5000 rupees a month may struggle with a 5,000 rupee loan.

For a state, that income is measured by Gross State Domestic Product, or GSDP. 

This is the total value of everything produced in that state in a year. This is its economic capacity. 

This is what ultimately determines whether a given level of debt is manageable or risky.

Now let us apply that lens to Tamil Nadu and Uttar Pradesh.

TN’s debt is ₹9.29 lakh crore and its total GSDP is ₹35.6 lakh crore. So Tamil Nadu’s debt is around 26 percent of its GSDP.

UP’s debt is ₹9.03 lakh crore and its total GSDP is around ₹30.8 lakh crore. So Uttar Pradesh’s debt is around 29 to 30 percent of its GSDP.

Now let’s consider the population sizes.

Uttar Pradesh has around 19 crore people. Tamil Nadu has around 7 crore. 

UP’s population is around 2.7 times of Tamil Nadu. Yet Tamil Nadu’s economy is slightly larger.

That means Tamil Nadu produces more economic output with one third the population.

This difference becomes even clearer when you look at per capita figures. 

Per capita Net State Domestic Product (NSDP) is the total value of goods and services produced in a state divided by its population. In India, this is often used as the official measure for a state's "Per Capita Income"

It matters for state debt because it indicates how much capacity residents have to support and repay that debt.

Tamil Nadu’s per capita NSDP is around 3,61,619 rupees

Whereas UP’s is 1,08,572 rupees.

So Tamil Nadu’s per capita NSDP is about 3.33 times that of Uttar Pradesh.

This gap reflects long term differences in education, skills, industrialisation, urbanisation, and job quality.

There are of course issues with looking at per capita income as indicators of whether all the people are economically healthy because a significant number of wealthy people can tilt the scales. 

So from what I explained, it becomes clear that debt cannot be looked at as a singular number. But why do we do so? Because politicians cutting across parties have used these same numbers to declare failure or success. A ruling party today could have used the same numbers when it was in the opposition and labelled it failure. 

Now back to what richer economies can do 

They can raise more tax revenue. They can service more interest. They can carry higher levels of debt without stress. Poorer economies cannot do this as easily.

So when someone says Tamil Nadu has more debt, the first question should always be, more debt relative to what.

Relative to income, relative to productivity, and relative to economic capacity.

Not relative to another state. 

And on these counts, Tamil Nadu is fairly strong.

Now let us address another assumption that often sneaks into this debate.

Lower debt does not automatically mean better governance.

Lower debt can mean lower investment.

A state that builds fewer schools can have lower debt. 

A state that builds fewer hospitals can have lower debt. 

A state that spends less on nutrition, transport, and welfare can have lower debt.

Tamil Nadu has invested heavily over decades in public goods.

 It has invested in education, in public health, in nutrition. And in social protection through a plethora of welfare schemes by consecutive governments. 

As a result, it has lower infant mortality, lower maternal mortality, higher life expectancy, better school enrolment, and better overall human development than most large Indian states.

These outcomes are not free. They require sustained public spending over many years.

So lower debt is not automatically a sign of prudence. It can also be a sign of under-investment.

Now consider the effect of COVID.

COVID was a once in a century shock. Economies collapsed. Health systems were under extreme pressure. Governments had to borrow just to prevent disaster.

In response to the pandemic, the Union government temporarily increased the borrowing limit for states from the usual 3% of GSDP to up to 5%, in order to create fiscal space for extra health spending, welfare support, and economic recovery.

While we do not have the exact number on which state utilised how much, economists say that this could be another factor why Tamil Nadu’s debt rose more after COVID.

Borrowing during a crisis is not recklessness. It is a necessity.

What matters is what happens after.

In Tamil Nadu’s case, the debt ratio has stabilised and is slowly declining. 

The fiscal deficit is around 3% of GSDP, which is within the limits set by fiscal responsibility laws. States follow fiscal rules set under their FRBM laws and the guidance of the Finance Commission. 

The key rule is simple: states are expected to keep their fiscal deficit close to 3 percent of their GSDP. That 3% benchmark is what defines “responsible” borrowing in normal times.

So according to this, Tamil Nadu is not borrowing uncontrollably.

At the same time, the economy has continued to grow. Real growth has stayed above 7%  driven by manufacturing and services. 

Tamil Nadu is one of India’s largest state economies, usually ranked second only to Maharashtra. It is also one of the most diversified.

It has a strong manufacturing base in automobiles, electronics, machinery, and textiles. It has a large and growing services sector. It has significant exports. It has steady private investment inflows.

This diversification matters. It makes growth more stable and resilient.

In 2024 to 25, Tamil Nadu’s GSDP was estimated at around 31.5 lakh crore rupees, growing at roughly 16% in nominal terms. That placed it among the top growth performers among large states.

Now consider human development.

Tamil Nadu’s Human Development Index is around 0.69 compared to India’s average of about 0.64. Literacy is higher than the national average. Life expectancy is higher. Poverty is lower.

This means the state has converted growth into social outcomes.

That matters for debt too.

Healthier and better educated populations are more productive. They earn more. They generate more tax revenue. Over time, that reduces fiscal pressure.

When you look at what the government spends on, this becomes clearer. 

Education receives the single largest sectoral allocation, with over ₹54,000 crore going into school and higher education together, which works out to roughly 13% of the state’s total budget. 

Health receives around ₹20,000 crore, or about 5 % of total expenditure, funding public hospitals, medical colleges, primary health centres, preventive care, and outreach programmes. 

A large share of revenue spending also goes into welfare and social protection, including nutrition programmes, pensions, income support schemes, transport subsidies, and benefits targeted at women, children, and vulnerable households. 

These programmes act as economic stabilisers. 

They reduce household risk, support consumption during downturns, and prevent people from falling into extreme poverty when shocks occur.

Tamil Nadu is also investing heavily in long-term economic capacity. 

The state has planned over ₹57,000 crore in capital expenditure, which is about 13% of the total budget, going into roads and highways, water supply and water body restoration, urban development, transport infrastructure, and industrial corridors. 

Finally, let’s look at revenue.

Tamil Nadu raises about three quarters of what it spends from its own taxes and non tax sources. Only about one quarter comes from the Union govt

Uttar Pradesh depends on central funds and grants for more than half its revenue.

So what can we see in these numbers?

Debt matters.

But what only when taken into account along with other factors. 

The size of the economy matters. The direction of growth matters. The quality of investment matters. The strength of the revenue base matters.

And on those measures, Tamil Nadu and Uttar Pradesh are on a different scale.

That is why simply saying one has more debt than the other is not just misleading.

It is meaningless.

Because in economics, context matters more than raw numbers.

Produced by Megha Mukundan, Script by Pooja Prasanna, Camera by Ajay R, Edit by Nikhil Sekhar ET, Graphics by Dharini Prabharan

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