The Central government is yet to respond to the Telangana government’s request to raise funds through open market borrowings (OMBs) via the Reserve Bank of India (RBI). The Centre, citing questions over the State’s finances and off-budget borrowings, has steadfastly refused the K. Chandrashekar Rao government’s request since the commencement of the 2022-23 financial year. The Centre’s continuing refusal has resulted in the State being unable to raise the Rs.2,000 crore it had planned to borrow through the RBI’s May 17 auction for open market borrowings.
Confirming the Centre’s continued refusal, K. Ramakrishna Rao, Telangana’s Special Chief Secretary, Finance, said that the State’s letter to the Union Finance Secretary T.V. Somanathan, explaining the State’s stand had elicited no response. Stated Ramakrishna Rao: “We have written to the Centre with our side of the story. We are waiting for them to reply. Let them get back. They have assured us that our concerns have been taken note of and will be thoroughly examined.”
The Centre’s refusal is threatening to become yet another flashpoint in the already frosty and frequently acrimonious relationship between the Narendra Modi-led Central government and the Chandrashekar Rao-led Telangana Rashtra Samithi (TRS) government in Telangana.
The crux of the matter pertains to: a) the Comptroller and Auditor General (CAG) of India expressing concerns over the State’s off-budget borrowings; and b) the Union Finance Secretary raising serious questions over Telangana’s borrowings in the name of different corporations “over and above the limits prescribed in the Fiscal Responsibility and Budget Management (FRBM) Act”, under the assumption that the Centre would treat these borrowings as part of FRBM norms.
The CAG report highlights the fact that Telangana was not fully disclosing its off-budget borrowings/liabilities and was even circumventing FRBM norms.
Telangana is extremely piqued with the Centre’s stand that off-budget borrowings, including bank guarantees, too would be taken as part of government debt and into account while assessing the State’s fiscal health in line with the recommendations of the 15th Finance Commission, and must be serviced as part of budget borrowings. Telangana has contended that the Finance Commission has made no such recommendations. The State has also made public the view that it was the Centre that had accorded permission to the States to borrow Rs.1.27 lakh crore outside of the FRBM norms.
Telangana’s decision to create boards and corporations—such as the Kaleshwaram Irrigation Project Corporation Ltd to mobilise funds for the construction of the Kaleshwaram Lift Irrigation Project (KLIP), the Telangana Drinking Water Supply Corporation Ltd to obtain funds for Mission Bhagiratha and the Telangana State Water Resources Infrastructure Development Corporation Ltd to raise funds for the State’s other irrigation projects—account for a major chunk of the bank guarantees provided by the State government.
With the government not imposing any user charges for the water being used from these irrigation projects, it is being forced to repay the debts on behalf of these corporations. These bank guarantees have also become the proverbial Albatross around the State’s neck, preventing it from auctioning bonds through the RBI.
The non-availability of funds will skew the State governments numerous big ticket social welfare programmes such as the Rythu Bandhu and Dalit Bandhu (which is costing the government around Rs.40 crore a day) schemes.
Telangana’s total debt burden, including budget (Rs.3,44,792 crore) and off-budget (Rs.1,45,456 crore) borrowings by the end of 2022-23 will stand at a whopping Rs.4,75,44 crore.
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