The newly elected governments of all four states that went to the polls — Tamil Nadu, West Bengal, Kerala and Assam — will have one major challenge to confront: The burden of debt.Tamil Nadu’s outstanding debt — the total money the state government owes to lenders at a given point — has nearly quadrupled from Rs 2.8 lakh crore to Rs 10.6 lakh crore between 2016-17 and 2026-27 (April-March). The stock of debt has also risen from 21.8% of the state’s gross domestic product (GDP) to 26.1% over this period.This debt pile-up has been accompanied by ballooning interest payments, from Rs 21,449 crore in 2016-17 to a budgeted Rs 78,677 crore for 2026-27.That’s not all. Ten years ago, interest payments consumed 15.3% of the Tamil Nadu government’s total revenues (or income from both tax and non-tax sources). This financial year, that ratio is expected at 22.8%.An unsustainable propositionThe story isn’t much different for West Bengal and Kerala.From the accompanying chart, it can be seen that the debt-to-GDP ratio was already high (30-38%) in 2016-17 for both states.It has since remained at those levels for West Bengal and increased for Kerala. The proportion of the government’s revenue that goes towards servicing interest on debt is close to 20% for both states.Story continues below this adFor comparison, the outstanding debt-to-GDP ratio for all states and Union Territories of India was estimated at 29.2% in 2025-26 (the last year for which aggregate data is available). The corresponding interest payments-to-revenue receipts ratio, at 12.2%, was way lower than that of Tamil Nadu, West Bengal and Kerala.Assam, too, has seen its debt-to-GDP ratio surge from 17.1% to 25.2% over the last ten years. Interest payments, however, have been contained well within 10% of the state’s overall revenue receipts.A key reason for that has to do with Assam being a special category state, which entitles it to obtain 90% of central funding for schemes or projects in the form of interest-free grants and only the remaining 10% as loans. For non-special category states — those neither in the Northeast nor having hilly and difficult terrain like Himachal Pradesh and Uttarakhand — the grants portion is just 30% and the remaining 70% comprises loans.But special category or not, and new governing party or old, the existing and rising levels of debt are simply unsustainable for these states.Story continues below this adThis is more so in an environment of hardening interest rates. On May 5, Tamil Nadu borrowed Rs 1,000 crore through the auction of a six-year state government security at an average interest rate of 7.49%. It raised the same Rs 1,000-crore loan for six years at only 6.54% a year ago.In general, states are now paying 7.72-7.73% on 10-year borrowings, as against 6.7-6.71% last year at this time.Unorthodox solutionsThe precarious debt situation of most states, perhaps, demands unconventional remedies.The Union government, for instance, can restructure, waive or reduce the interest, or even write off a part of its loan to a state. The relief could be conditional upon the state undertaking reforms — electricity tariff rationalisation; imposing charges on water, sanitation and other public services to recover operation and maintenance costs; targeting of welfare schemes to low-income and vulnerable households; and devolution of financial powers to panchayats and urban local bodies.Story continues below this adThere can be other innovative solutions as well. Take the Tamilnadu Industrial Development Corporation (TIDCO). This state government-owned industrial promotion agency has a 27.88% stake in Titan Company Ltd. That’s more than the combined 25.02% share of the Tata Group through its holding company and various subsidiaries. It makes TIDCO the main promoter of Titan, which was established in 1984 as a joint venture for manufacturing quartz analog watches at Hosur on the Tamil Nadu-Karnataka border.That company — originally Titan Watches Ltd — has today grown to a premier lifestyle accessories maker with a product portfolio spanning watches and wearables (Titan, Fastrack and Sonata brands), jewellery (Tanishq and CaratLane), eyecare, women’s bags (IRTH) and ethnic wear (Taneira sarees and tops). Titan Company earned a net profit after tax of Rs 3,337 crore on a total income of Rs 60,942 crore during the year ended March 31, 2025.Now, how is this relevant to Tamil Nadu’s debt woes? The answer lies in the market value of Titan Company’s shares. That, at the share’s closing traded price on May 6, was worth Rs 3,86,919 crore. TIDCO’s 27.88% holding in Titan will alone be valued at Rs 1,07,873 crore.Simply put, if TIDCO were to sell its entire stake in Titan Company, the Tamil Nadu government would be able to mobilise upwards of Rs 1 lakh crore and bring down its outstanding debt by roughly a tenth. The annual savings in interest outgo resulting from it will far exceed the Rs 272 crore that TIDCO received as dividend for 2024-25 from its 27.88% shareholding in Titan Company.Story continues below this adThe election manifesto of Tamilaga Vettri Kazhagam — the party of filmstar-turned-politician Vijay, who will likely become chief minister — has promised to transform Tamil Nadu into a “financially self-sufficient state… by reducing the growing debt burden… and creating new sources of income”.The sale of TIDCO’s stake in Titan could well be one such novel source of income. The proceeds can be used to retire government debt, thereby lowering its annual interest burden. That will make more government money available for infrastructure, health, education, agriculture research-cum-farm extension, and targeted welfare spending.Finding new revenue sources to alleviate a chronic debt burden presents a similar challenge for the other states too.