Telangana

Telangana in financial quandary as RBI refuses to permit the State to participate in auction for open market borrowings

Published : May 13, 2022 20:44 IST

At the Reserve Bank of India headquarters in Mumbai. Photo: FRANCIS MASCARENHAS/REUTERS

The Union government’s continued refusal to permit the government of Telangana to participate in the forthcoming May 17 auction for open market borrowings has put the latter in a financial quandary.

The Union government’s continued refusal to permit the government of Telangana to participate in the forthcoming May 17 auction for open market borrowings has put the latter in a financial quandary. As per the loan calendar, the State was supposed to raise Rs.2,000 crore on May 17.

While the Centre has indicated that it was not satisfied with the replies furnished by the State on the loans it had been raising as the reason for preventing the State from further open market borrowings, the Telangana government has termed the Centre’s move as yet another vindictive measure against a “performing State”.

Speaking to Frontline, Ramakrishna Rao, Telengana Special Chief Secretary, disclosed that the Telangana government was already in the process of submitting a request to the Centre to allow the State to go ahead with the borrowings. The State’s topmost financial expert added that the State had already made an oral submission to the Centre explaining its stand during the recent May 9 meeting of State Finance Secretaries.

Telangana, which has already missed three bond bidding dates and the Rs.6,000 crore it had hoped to raise in the form of bonds from them, could soon be staring at a deep financial crisis. Something it can ill afford considering that it needs funds for its numerous social and populist schemes, including the “Farm Loan Waiver”, Dalit Bandhu, and Mana Ooru-Mana Badi schemes at a time when elections to the State Assembly are less than 11 months away.

According to the indicative calendar shared by Telangana with the Reserve Bank of India (RBI), the total money to be raised through loans in April and May were Rs.8,000 crore. As much as Rs.1,000 crore was to be raised on April 11; Rs.2,000 crore on April 26; Rs.3,000 crore on May 2; and Rs.2,000 crore on May 17. And with Telangana already having failed to raise bonds worth Rs.6,000 crore, the May 17 auction is crucial. Telangana was planning to raise Rs.15,000 crore in the first quarter of this fiscal.

Incidentally, Telangana is not alone in not finding its name in the latest schedule issued by the RBI for the auctioning of securities of State governments on May 17. Only three States—Andhra Pradesh, Maharashtra and Rajasthan—have been permitted by the RBI to participate in the auction.

According to reliable sources, the RBI has particularly sought details from the States on loans taken by them and on bank guarantees given to corporations that were not mentioned in the budget documents.

Said Ramakrishna Rao: “The Centre has raised certain queries. It has pointed out that funds raised outside of the State Budget must be serviced as part of the Budget. The Centre wants it to be part of the State’s debt.”

According to the Fiscal Responsibility and Budget Management (FRBM) rules, States can borrow up to 40 per cent of their Gross State Domestic Product (GSDP), something that Telangana has observed so far.