Tamil Nadu’s economy may grow at a rate of 8.08% to 10.69% in 2024-25. Providing these real growth rate figures (as opposed to nominal rates that include the factor of inflation), a study on the State economy, conducted by C. Rangarajan and K.R. Shanmugam, chairperson and director of the Madras School Economics respectively, has estimated that in the recently concluded financial year of 2023-24, the State’s growth rate varied from 8.08% to 9.44%.
The study has taken into account four scenarios (only two of which are given in the table), apart from the findings that have been arrived at by using a statistical analysis model — autoregressive integrated moving average.
Commissioned by the State Finance Department, the study said that the country’s expected economic growth rate for 2023-24 was 7.3%. Being a “better-performing State,” Tamil Nadu’s growth would, in all probability, be faster than India’s.
Covering the economic growth between 2005-06 and 2022-23, the two economists said that the State “registered a strong real growth” of 10.3% from 2005-06 to 2011-12 (2004-05 series), while the all-India growth stood at 8.23%. However, its average growth rate declined to 6.21% during 2012-13 to 2022-23 (2011-12 series), compared with the all-India figure of 5.73%.
Acknowledging that there was a “downward shift” in the growth path of the country and Tamil Nadu, the authors said this was “also true” for other major States.
“One main reason could be the change in the methodology of computing the Gross Domestic Product and the Gross State Domestic Product from 2011-12,” the authors said.
The State’s economy was hit by three “external shocks”– the COVID-19, the Russia-Ukraine conflict, and the hike in interest rates by advanced nations to curb inflation. Though it “appears to have recovered almost fully” from the impact of the pandemic, the trend hinted that “Tamil Nadu’s growth is more susceptible to global fluctuations than India’s growth pattern”.
Providing an account of different features of the State’s economy, including trends in inflation and employment, credit availability, social parameters and climate change, the authors also flagged certain issues and made recommendations. Noting that the State had the potential to register a double-digit growth, they said that the average annual growth was 8% from 2021-22 to 2022-23. “It is essential to take forward this momentum in the coming years,” they added. In view of the State being “vulnerable” to ‘external shocks’, the government should take “counter-cyclical measures” such as increasing capital expenditure and providing fiscal incentives to protect the economy.
The study also called for controlling the growth of public debt, the current level of which “is not supportive to growth,” the study pointed out that “almost all the major States have a similar problem.”
Tamil Nadu should represent to the 16th Finance Commission for debt consolidation and relief schemes or schemes to write off debt, as the 12th Finance Commission had recommended such measures, the study further noted.
