"Expenditure reform, not just revenue mobilisation, is key to State fiscal sustainability." Critically evaluate in the light of recent State initiatives.

Whether a State's finances can last depends on how it spends as well as on what it raises. Tamil Nadu shows why. Its committed expenditure on salaries, interest and pensions takes about 61% of revenue receipts in 2026-27, while the average across States was 50% in 2025-26 [1]. Expenditure reform is therefore necessary, but it is not enough on its own.

Why expenditure reform is key

• Locked spending blocks investment: salaries take 26% of TN's revenue receipts, interest 22% and pensions 13%. The 16th Finance Commission notes that such spending squeezes capital expenditure [1].
• The kind of spending affects growth: RBI links a higher share of capital outlay to faster per-capita GSDP growth [5]. Yet capex across all States is only about 2.7% of GSDP, while subsidies take 9% of revenue receipts [6].
• CAG has warned repeatedly: its 2024-25 audit of Tamil Nadu again recommends controlling committed spending and improving the quality of capex [2].
• Recent initiative: after its 2026 White Paper, Tamil Nadu set up expert panels on public spending and revenue. One aim is to measure spending in a way that matches international standards.
• Global practice: the IMF recommends spending reviews built into the yearly budget, so that money moves away from low-value items [4].

Limits of an expenditure-only approach

• Little can be cut: interest is the cost of past borrowing, and salaries and pensions are legal obligations. Any savings must come from welfare and capital works, which poor households depend on.
• Low revenue makes the ratios worse: CAG notes that TN's collections fell short of both its Budget and Revised Estimates [2]. Committed spending is measured against revenue receipts, so weak collections raise the ratio even when spending does not grow.
• No common definitions: CAG put TN's committed spending at about 71% in 2011 because it counted subsidies [3], while PRS leaves subsidies out [1]. RBI also counts loans and advances as capex [5]. Without common definitions, no one can track whether reform is working.
• Risk to welfare: calling spending "low-value" can become an excuse to cut social programmes.

Expenditure reform tackles a rigidity that more revenue alone cannot fix. But it works only alongside realistic revenue estimates and stronger tax collection. States should adopt common expenditure definitions, make outcome-based spending reviews a regular part of budgeting, protect capex and target subsidies through DBT. Reform needs both spending and revenue to move together, so that States stay financially sound and keep the welfare commitment of Article 38.