Saturday, 05 Oct, 2024
Telangana Chief Minister A. Revanth Reddy. (Photo courtesy/X)
The government’s decision to raise the borrowing target from Rs 57,112.48 crore in the February Vote-on-Account to Rs 69,572.48 crore in the July full budget highlights escalating fiscal pressures and heightens concerns about the long-term stability of the state’s finances.
Telangana’s debt has surged dramatically, propelled by a recent Rs 3,000 crore market loan, bringing total borrowings to Rs 50,118 crore in just eight months. Despite previously criticising the Bharat Rashtra Samithi (BRS) government’s borrowing practices, the Congress administration has adopted an aggressive strategy, accumulating nearly Rs 35,000 crore in debt over the last five months. This rapid increase pushes the state closer to the projected Rs 69,572.48 crore borrowing target for the fiscal year, sourced from market loans, central assistance, and deposits.
Concerns over fiscal stability
Experts caution that if this trend continues, Telangana’s debt could surpass budget estimates. The Revanth Reddy-led government has already revised its budget, raising the borrowing target from Rs 57,112.48 crore in the Vote-on-Account presented in February to Rs 69,572.48 crore in the full budget introduced in July. This upward adjustment reflects mounting fiscal pressure and raises concerns about the long-term stability of the state’s finances.
Soaring debt since formation
Since its formation in 2014, Telangana’s debt has nearly increased ten-fold, soaring from Rs 75,577 crore to Rs 6,71,751 crore by 2023-24, as noted by Deputy Chief Minister Mallu Bhatti Vikramarka. The Rs 2,91,159 crore budget prioritises agriculture and welfare, allocating Rs 2,20,945 crore for revenue expenditure and Rs 33,487 crore for capital projects.
Increased borrowing and expenditure patterns
Since the government took office in December, Telangana has raised Rs 35,118 crore in loans while repaying Rs 42,892 crore. From December to July, it spent Rs 34,579 crore on various initiatives, including free bus travel for women and electricity subsidies, alongside a capital expenditure of Rs 19,456 crore.
CAG report highlights debt concerns
The recent CAG report underscores the mounting debt, revealing that the state must repay over Rs 2.67 lakh crore in market borrowings, including principal and interest, by FY33. Despite robust economic growth—GSDP increasing at an average annual rate of 15.09 per cent, from Rs 8.60 lakh crore in 2018-19 to Rs 13.13 lakh crore in 2022-23—the debt remains a pressing concern. Additionally, the state faces Rs 19,210 crore in repayment obligations over the next nine years for institutional loans from entities like the National Small Saving Fund and LIC.
Projected debt servicing challenges
The figures indicate Telangana will need to mobilise more than Rs 2.86 lakh crore by FY33 to service its public debt, placing considerable pressure on the state’s finances and straining fiscal resources despite economic growth. The CAG also warned that meeting these debt-servicing requirements could challenge the state’s ability to balance developmental needs with financial sustainability.
Alarming debt-to-GSDP ratio
Moreover, the audit report highlights that when factoring in off-budget borrowings (OBB) of Rs 1.19 lakh crore and other liabilities for FY 2022-23, Telangana’s debt-to-GSDP ratio climbs to 35.64 per cent, exceeding the 25 per cent target set by the Telangana State Fiscal Responsibility and Budget Management (TSFRBM) Act by 10.64 per cent and surpassing the XV Finance Commission’s 29.70 per cent limit by 5.94 per cent. These deviations illustrate significant fiscal strain and raise alarms about the state’s long-term financial health.
Short-term financial strategies
Lastly, the Telangana government has relied on Ways and Means Advances for nearly the entire FY23, except for 24 days, to manage short-term cash flow mismatches.
Future Budget allocations
The proposed 2024-25 budget includes key allocations of Rs 72,659 crore for agriculture, Rs 21,292 crore for education, and Rs 22,301 crore for irrigation. Additionally, Rs 29,816 crore is earmarked for Panchayati Raj and rural development, alongside Rs 10,000 crore for capital city development in Hyderabad and Rs 11,468 crore for health services.
Experts are of the view that Telangana faces significant fiscal challenges as its aggressive borrowing strategy pushes the state’s debt to unprecedented levels. Despite robust economic growth, the increasing debt-to-GSDP ratio raises alarms about long-term financial sustainability. The revised borrowing targets and heavy reliance on market loans reflect growing fiscal pressure, necessitating careful management to avoid undermining developmental priorities. As the state grapples with substantial repayment obligations, its ability to balance welfare commitments with prudent fiscal policies will be crucial in maintaining financial stability moving forward.
(This is the fourth part in the India Tracker data journalism series “When Welfare Means Farewell to Prudence.”)
