Having traveled on foot boards extensively in Chennai city buses, its not that the state cannot afford it, the people aren't ready to spend money for little comforts either.
A lot of it has to do with low wages even for the educated working class. People scrimp and save for education of kids, marriage, if lucky, buy property followed by gold & silk.
TN Govt many years ago had introduced AC volvo buses for city commuting but they ran empty and were eventually withdrawn and moved into short distance routes like Chennai-Mahabalipuram-Pondicherry etc.
Peeps would rather travel in rickety buses than pay a premium for comfort of an AC bus.
The mentality has not changed a great deal despite a bump in disposable incomes lately.