Tamil Nadu's revenue crisis exemplifies the broader challenges facing Indian states, with the state's own-tax revenue share of gross state domestic product declining from 5.93% in 2021-22 to 5.45% in 2025-26 (pre-actuals) - the lowest level in the review period. According to the White Paper, this deterioration is characterized as structural rather than cyclical, fundamentally changing the nature of fiscal reform efforts. The committee's success will ultimately be judged not by short-term revenue gains but by whether it can restore the long-term relationship between economic growth and public finances. As a senior official noted, "If, five years from now, Tamil Nadu's economy grows and government revenues naturally grow alongside it, the committee would have addressed the structural problem."
States' own tax revenue now exceeds 50% of revenue receipts, marking a significant shift in fiscal dependency. According to the Comptroller and Auditor General of India's 'State Finances 2024-25' report, this share increased from 45.16% in FY17 to 50.13% in FY25. However, this upward trajectory masks underlying concerns about the sustainability of this revenue growth, as falling tax buoyancy rates suggest collections are not keeping pace with economic expansion. The White Paper points to administrative shortcomings, leakages and corruption as major reasons for declining revenue effort, with fast-growing sectors not adequately captured and enforcement remaining weak in some areas.
The growth rate of states' own tax revenue has consistently declined since FY23, falling from 19.81% in FY23 to 10.66% in FY24, and further to 8.05% in FY25. Consequently, states' tax buoyancy — measured as the percentage change in OTR divided by the percentage change in gross state domestic product — dropped from 1.43 in FY23 to 0.92 in FY24, and down to 0.67 in FY25. A buoyancy rate above 1.0 indicates OTR is outgrowing GSDP, while rates below 1.0 signal a narrow tax base and collection inefficiencies. The White Paper notes that Tamil Nadu's own-tax effort weakened even during the post-Covid economic recovery, with the committee now being asked to examine compliance, administration and structural reforms across departments.
The most concerning development is in state goods and services tax (SGST), which contributed 43.38% of states' OTR in FY25. SGST buoyancy fell below 1.0 for the first time, dropping from 1.37 in FY24 to 0.84 in FY25. Similarly, Central GST's buoyancy rate also dropped below 1.0 for the first time in FY26, attributed to subdued GST collections following the rationalisation of GST tax slabs from four to two. The White Paper emphasizes that improving expenditure efficiency is equally important as collecting more revenue, with an inefficiently spent rupee having the same fiscal consequence as a rupee that was never collected.
The committee's mandate extends far beyond traditional taxation to include comprehensive fiscal reforms. It has been empowered to examine user charges, liquor policy, asset monetisation and other non-tax revenues, reflecting a wider understanding that taxes are only one way governments raise resources. As a senior consultant explained, "Public finance does not improve only by collecting more. It also improves when leakages on the expenditure side are reduced." The committee can summon officers, call for records from departments and public sector undertakings, and create specialized working groups for individual revenue heads. Technology occupies a central place in the terms of reference, with digital systems aimed at simplifying compliance and reducing discretion, though experts note that technology alone rarely eliminates corruption without strengthening governance itself.
