Editorial: World Bank-funded projects in Tamil Nadu

The Tamil Nadu government and Chief Minister MK Stalin have been upbeat about the continued support from the World Bank in the transformation and development of the State. By lending financial resources to not only infrastructure projects but also social welfare and development projects, the World Bank seems to be endorsing the broad growth model that blends economic development and social justice. In addition to infrastructure projects, especially roads and bridges, the State received World Bank funding for urban and rural development programmes. Likewise, the World Bank has been backing projects relating to poverty reduction, livelihood and women's employment and safety. It was announced recently that the World Bank would pump in about $410 million for new projects.

While acknowledging the international financial institution’s contribution to the development of the State, Stalin flagged the issue of high interest rates – viz, 6-7% per cent – being charged for the development loans. He hoped that the Bank would offer more affordable options for investments in socio-economic development projects. Tamil Nadu’s development indeed relies on funding through loans, which has been criticised by many who cite the state’s total quantum of debt. Tamil Nadu is not alone when it comes to debt dependency. The State government, however, justifies it on the grounds that when seen as a per cent of its Gross State Domestic Product, it is within the acceptable limit set by the Finance Commission. Secondly, there is some truth in the claim that the State is not getting its due from the Centre, which is forcing it to resort to borrowings.

To address this issue, the State has to reduce its debt burden on the one hand and increase its tax revenues on the other. Its financial woes, to some extent, have their roots in politics and being a non-BJP-ruled state. The State faces a major constraint as its revenues constitute 75.3% of the total revenue receipts, with the balance 24.7% coming from the share in Central taxes and grants-in-aid. There’s little room to manoeuvre when it comes to raising its tax revenues, especially as elections are a few months away. Moreover, the Centre has not been helpful when it comes to allocating and transferring funds to the State. For instance, the state government has gone to court regarding the release of the pending grants-in-aid relating to the Samagra Shiksha Scheme for the implementation of obligations under the RTE Act.

Tamil Nadu is one of the fastest-growing states in the country and has a good track record in both economic development and human development indicators. The State has been able to manage its finances reasonably well, despite the above-mentioned constraints. Its goal of becoming a $1 trillion economy by 2030 is, to put it mildly, over-ambitious due to uncertainties and variables. With all the above constraints, it will become even more challenging to achieve it. Beyond a point, growth fueled by excessive loans and a relatively limited increase in revenues could push the state into a debt trap, which will be counterproductive. The government would like to accelerate the implementation and completion of projects so that it could go to the voters in 2026 with an impressive report card, and that itself could be the reason for obstacles in its path.