SWOT analysis on TN

As Tamil Nadu heads into an election season, its economic story inspires both confidence and caution. Strong growth, rising investments and industrial depth signal momentum, yet fiscal pressures and demographic shifts pose real tests. This SWOT analysis delves into the details behind that trajectory.

Strengths:

TAMIL NADU IS GEARING up for assembly elections soon and a report card on the state’s overall performance shows it has done well in aspects such as economic growth, industrial de­velopment and attracting investments.

When the DMK came to power in 2021, Chief Minister M K Stalin set an ambitious target of achieving a USD one trillion economy by 2030. This target meant the state should consistently clock in high double digit growth each year and the progress on this front has been good so far. In 2024-25, the state registered a real growth of 11.2 per cent and a nominal growth of 16 per cent, the high­est among major states. As per the interim budget for 2026-27, Tamil Nadu nominal economic growth is expected to be 14.5 per cent in 2025-26, with real growth projected at 9 per cent. Going forward, the growth is projected at 14 per cent per annum for 2027-28 and 2028-29.

Tamil Nadu is a highly industrialised state, housing the highest number of factories at 40,121. The manufacturing sector recorded a robust real growth rate of 14.74 per cent in 2024-25, over three times the all-India average of 4.5 per cent. Over the four-year period from 2021-22 to 2024-25, Tamil Nadu’s average manufacturing growth rate is 9.38 per cent. The state accounts for 15 per cent of India’s total factory workforce, the Economic Survey of India 2025-2026 said. The state’s services registered a growth rate of 11.3 per cent in 2024-25.

The DMK government since assuming office, has signed 1179 Memorandum of Understanding (MoUs) with committed investment of Rs.12.37 lakh crore to create 36 lakh employment opportunities till date and the conversion rate of MOUs is about 73 per cent. The state also contributes 41.23 per cent of India’s total electronics exports. It has done well in the electronics segment also driven by the union government’s performance linked incentive (PLI) segment for the sector.

The state has also done well in terms of distributed growth by getting invest­ments to places like Hosur, Ranipet and Thoothukudi among others and also ensuring factories come up in quick time. For instance Phoenix Kothari foot­wear project in Perambalur, VinFast project in Thoothukudi and Tata Jaguar Land Rover projects coming on stream within a year.

Weaknesses

Tamil Nadu’s Finances has been under stress. As per the interim budget, the State’s outstanding borrowing as on 31 March 2027 will be Rs.10.71 lakh crore, 26.35 per cent of Gross State Domes­tic Product (GSDP) in 2026-27. Though this is within the limits prescribed by the Finance Commission, there are a lot of challenges that needs to be addressed. The Tamil Nadu gov­ernment has been complaining that it is not getting its fair due from the central government in share of taxes. That apart, a lot needs to be done at the state level.

A report submitted to the 16 Finance Commission noted that Tamil Nadu’s 68 operational public sector un­dertakings (PSUs) have made minimal contributions to the state’s economy, despite providing significant employment and attracting investments, as per the report. Losses from key PSUs in the power sector have been escalating, and their performance needs urgent improvement to reduce financial strain, it said.

The state’s Economic Survey points out that future pressures arising from pay revisions, pensions and GST rationalisation could strain fiscal space. Sustaining growth will therefore require disciplined and produc­tive use of resources, it said.

Opportunities

The USD one trillion economy target presents a significant opportunity. As per state’s Economic Survey for 2025-26, if Tamil Nadu sustains its 2024-25 nominal growth rate of 16 per cent and with an assumption of 2 per cent (medium-term rate) rise in the value of dollar against rupee per annum in the medium term, it can achieve the trillion-dollar milestone by 2031. With 3.5 per cent (short term rate of rise of dollar value), it may be delayed for a year.

The state’s labour-intensive export oriented sec­tors like textiles and leather were affected due to the US tariffs. But, now with the US agreeing to reduce the tariffs and the trade deal with the Euro­pean Union being finalised, the uncertainties have been offset.

Though the state lagged behind Bengaluru and Hy­derabad in terms of IT sector, it is gaining some of its lost ground. Chennai has over 250 Global Capa­bility Centres (GCCs) and GCCs are also being set up in cities like Coimbatore and Tiruchirappalli.

Investments in emerging industrial hubs, expan­sion into AI, advanced manufacturing & electronics and faster project execution strengthen the state’s growth prospects.

Threats

Tamil Nadu has to grapple with is the ageing population. According to Reserve Bank of India’s report ‘State Finances: A Study of Budgets of 2025-26’, Tamil Nadu will have 15.8 per cent of its population in the ageing category by 2026 and it will touch 20.8 per cent by 2036. The report noted that changes in the population age structure can have a significant effect on fiscal sustainability since they can affect both government revenues and expenditures. The RBI report did highlight measures taken by Tamil Nadu like doorstep delivery of medical services for elderly households; centres for day care and health services for senior citizens, and state pen­sion schemes for the elderly and the vulnerable.

Global uncertainties and currency fluctuations may delay the trillion-dollar milestone.

While the state has done well in terms of attract­ing investments, challenges remain in terms of stiff competition from other states and address­ing issues like availability of land and navigating technological impact like AI.