Hyderabad: Telangana’s total debt has shot up by almost 10 times since 2014, and is now crippling the state’s finances, a white paper released by the state government has found.
The new Congress government Wednesday tabled a white paper on state finances in the Telangana assembly, to highlight what it called “poor fiscal marksmanship” during the past nine-plus years of the Bharat Rashtra Samithi (BRS) government under K. Chandrashekar Rao.
The paper shows that the state’s actual debt, including off-budget repayment of debt raised by government-created special purpose vehicles (SPVs), has risen to Rs. 6,71,757 crore in 2023-24 from Rs 72,658 crore in 2014-15.
SPVs are separate entities created by a parent organisation to complete a business purpose.
About 60 percent of this debt is budgeted and taken by the state government on its books, while about 20 percent is debt taken by special purpose vehicles but being repaid by the government, the paper noted. The balance 20 percent is debt raised by the SPVs and other corporations and repaid by them.
Debt taken by the government refers to debt the government has to directly repay and which is reflected in its budget. Debt taken by special purpose vehicles and guaranteed by the government does not reflect in the budget numbers, even if the government does eventually take on the burden.
Officially, the state’s debt is budgeted to be 27.8 percent of its gross state domestic product (GSDP) in 2023-24, up significantly from 14.4 percent in 2014-15. However, this ratio worsens considerably when the off-budget borrowings are added.
“Off-budget borrowings include loans availed by entities outside of the government system, but guaranteed by the state,” the white paper said. “Some of these loans have now become financial obligations on the Consolidated Fund of the State since these entities lack the financial resources to service these loans. If government guaranteed loans raised by SPVs but serviced by the government are added, the debt-to-GSDP ratio would increase to 36.9 percent,” says the paper.
Telangana, which was a revenue surplus state at the time of its formation in 2014, with one of the fastest growing economies in the country, is now staring at a debt crisis, said Mallu Bhatti Vikramarka, deputy chief minister and finance and planning minister.
Bhatti termed this as “financial anarchy, pushing the state into a debt trap”.
According to Vikramarka, the rate of accumulation of debt from off-budget borrowings has led to this situation.
The white paper says that a total of 17 SPVs and institutions have an outstanding debt of Rs 1,27,208 crore, which is guaranteed by the state government.
As these institutions do not have sufficient revenue to service the debt, the Government is supporting them to pay back the principal and interest,” the paper says. “Even though, legally and technically, this debt is not on the books of the state, it should be included in the total debt burden of the state, as it is being serviced by the state.”
Of this debt raised by SPVs and that is being serviced by the state government, the highest amount of Rs 88,651 crore has been raised by SPVs under the irrigation department. Within this, Rs 74,590 crore — or approximately 59 percent of the debt raised by SPVs and serviced by the government — has been raised on account of the Kaleshwaram Irrigation Project Corporation, says the paper.
The mega lift irrigation project on River Godavari has been mired in controversies with the BJP and Congress accusing the KCR family of massive corruption in its execution, “turning the project into their ATM”. Further complicating the matter, the Medigadda barrage, a major component of the Kaleshwaram project developed cracks and some piers sunk in October, raising serious concerns about construction-quality aspects too.
Speaking on the paper in assembly, former finance minister Harish Rao accused the Congress government of cooking up statistics, presenting only the debt numbers, and not the assets built, and welfare served by the BRS government.
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Rising expenditure, shrinking revenues
Apart from the debt servicing on behalf of the SPVs, the white paper says the state government’s budgeted debt has also increased because of “rising expenditures in Telangana, not matched by a proportionate increase in revenues”.
Without going into reasons, the white paper states that as a proportion of GSDP, revenue receipts declined from a peak of 13.2 percent in 2015-16 to 11.8 percent in 2018-19.
“Thus, as a percentage of GSDP, revenue receipts started declining even before the start of the economic slowdown and the pandemic,” it said.
It added that Telangana’s performance in terms of the revenue receipts-to-GSDP ratio in comparison with other general category states was “less than satisfactory” in FY 2021-22.
“At 11.3 percent, its receipts-to-GSDP ratio was 3.3 percentage points lower than the India General States average (14.6 percent),” the paper notes. “Only five other states had lower revenue receipts-to-GSDP ratios than Telangana in FY 2021-22″, it claims.
A table in the paper shows Maharashtra, Tamil Nadu, Karnataka, Haryana and Gujarat to be these five states.
Despite these shrinking revenue shares, the government has committed large amounts to capital expenditure and is facing an ever-increasing salary and pension burden, the paper went on to say.
Since the formation of the state, the government has entered into 39,175 work agreements amounting to Rs 3.5 lakh crore, for which Rs 1.9 lakh crore had already been incurred by 4 December 2023, and a balance amount of Rs 1.6 crore was yet to be spent.
On the revenue expenditure side, the white paper said several pay revisions have significantly increased the state’s wage bill.
“The total expenditure on salaries increased in all the years since FY 2014-15 at an annual average growth rate of 17 percent,” it said. “There were significant spikes in FY 2015-16 (69 percent) and FY 2021-22 (23 percent), due to the implementation of revised pay scales.”
This gap between expenditure and revenue has meant the state’s fiscal deficit has been widening, which has to be financed through debt.
“This gigantic increase in the debt, almost 10 times, has created an enormous fiscal stress on the state’s finances in terms of its ability to service the debt,” Bhatti said in the house. “Further, no tangible fiscal assets in proportion to the money spent were created in the past 10 years.”
Telangana started on a firm footing on the fiscal front, the paper says. There was a revenue surplus during the first five years and fiscal responsibility norms were also broadly adhered to.
Gap between what’s budgeted and actual expenditure
The white paper also underlined a gap of almost 20 percent between the budgeted and the actual expenditure under the BRS government.
The gap means an accumulation of committed expenditure in terms of payments made for the services rendered by suppliers and contractors and also to the employees. In other words, the paper says the government allocated money to be spent, commissioned the various services, but then did not actually spend the required amount.
“Further, there is a huge gap between the budgeted and actual money spent on major welfare schemes such as Dalita Bandhu and other welfare programs aimed at the welfare of ST [Scheduled Tribes], BC [Backward Classes] and minorities,” Bhatti said. This, experts have said, had political ramifications.
Though the KCR regime has brought in several welfare schemes to benefit the SC, ST and BCs, a shortfall in serving the needy, political observers had said, led to dissent building against the BRS rule, culminating in Telangana Pradesh Congress Committee chief Revanth Reddy replacing two-term CM KCR.
‘Biased picture of state finances’
While former finance minister Rao, speaking in the house in response to the document, has accused the Congress government of presenting only the debt numbers, and not the assets built, and welfare served by the BRS government, the paper says that “over the past decade, there is a discernible absence of visible and substantial infrastructure development that corresponds proportionally with the accumulated debt”.
“This divergence raises serious concerns regarding the effective utilisation of borrowed funds for infrastructure creation,” it added.
Rao said that Congress is presenting a biased picture of the state’s fiscal health, and that projecting Telangana in poor light as debt-ridden will drive away industrial investments and further loans.
The former minister also blamed demonetisation and the Covid-19 pandemic for a fall in revenues, which prompted loans.
While Rao alleged that the Congress is seeking to escape from implementing the poll promises with a “depraved” projection of state finances, FM Bhatti said that the new government “is determined to implement all the six guarantees promised by the party based on which the people of Telangana gave the mandate for change.”
“Our government is determined to overcome the fiscal challenges in a responsible, prudent and transparent manner. The white paper on state finances is the first step in this direction,” Bhatti said.
(Edited by Poulomi Banerjee)