In the inaugural session of the newly elected Assembly held from December 9 to 21, the Congress government presented two white papers, one on the Telangana State finances and the other on the power sector. Congress leaders slammed the previous Bharat Rashtra Samithi (BRS) government for pushing Telangana into a debt crisis with financial mismanagement and wasteful expenditure in the two terms it was in power since the creation of the State in 2014. The BRS, in turn, released a white paper stating that there had been phenomenal growth in the State and that the Congress was misrepresenting assets as liabilities. This has developed into a heated debate over the State’s finances at a time when the Congress has to present its first Budget and carry out its electoral promises.
According to the white paper on finances, Telangana’s debt as a part of within-Budget borrowings increased to Rs.3,89,673 crore in 2023-24 (Budget estimates) from Rs.72,658 crore in 2014. In addition to this there are debts in the form of off-Budget borrowings by special purpose vehicles (SPVs) and other institutions. The outstanding debt on government-guaranteed and government-serviced loans raised by 17 SPVs and institutions stands at Rs.1,27,208 crore, the white paper states. The amount of government-guaranteed loans that are serviced by SPVs is Rs.95,462 crore. There is also an outstanding debt of Rs.59,414 crore raised by SPVs and other corporations that is not guaranteed or serviced by the government and hence is not much of a concern to the exchequer. Hence, the total outstanding debt is Rs.6,12,343 crore. Interestingly, the outstanding debt for Kaleshwaram Irrigation Project Corporation Ltd alone (government guaranteed and government serviced) is Rs.74,590 crore (as on December 1, 2023).
BRS leaders, including K.T. Rama Rao, former Minister and party supremo K. Chandrashekar Rao’s son, criticised the Congress for suggesting that Telangana had fair resource allocation, asset creation, and better fiscal management when it was part of undivided Andhra Pradesh. There has also been an attempt to dismiss the development and welfare activities undertaken by the BRS, he said.
Refuting the allegations about lack of progress and development, BRS leaders rattled off data on the gross State domestic product (GSDP), per capita income, and other indicators. They said the Telangana GSDP had grown from Rs.4.51 lakh crore in 2013-14 to Rs.13.13 lakh crore in 2022-23. And that the per capita income (PCI) had increased from Rs.1,12,162 to Rs.3,17,115 (current prices).
The PCI, however, is a poor indicator of economic development and a misleading figure, said G. Vijay, assistant professor at the School of Economics in the University of Hyderabad. He said one did not have to look beyond ordinary urban dwellers to see the low average monthly incomes and increased cost of living.
Telangana’s financial situation was not necessarily a secret, but the debates over the State’s budgeting, spending, and borrowing patterns have become mainstream following the publication of the white papers.
One of the criticisms in the white paper of the BRS’ budgetary process is that it was flawed and over-optimistic. The gap between the estimates and expenditure was about 20 per cent for Telangana, while most other States maintained it below 5 per cent. However, retired officials and experts have pointed out that an overestimated budget is not uncommon in the two Telugu States and is not a practice that was unique to the BRS. Chief Minister A. Revanth Reddy has urged the administration to prepare a realistic Budget estimate for the coming fiscal year.
The Fiscal Responsibility and Budget Management (FRBM) Act recommends a 25 per cent ceiling in the debt-to-GSDP ratio. This stands at 27.8 per cent. According to the white paper, if the off-Budget borrowings serviced by the government are included, Telangana’s debt-to-GSDP ratio will be 36.9 per cent. This, combined with the lower-than-estimated revenue receipts, has become a cause of concern for the new government. In 2021-22, the State’s revenue receipts-to-GSDP was 3.3 per cent lower than the national average at 11.3 per cent. Revenue receipts include a share of Central taxes and grants, and the BRS, in its second term, had repeatedly complained about the Centre’s unfair treatment of Telangana.
The white paper also detailed how transparency took a hit when the BRS government circumvented the FRBM Act in 2020 so as to increase the quantum of guarantees (assured by the State government) from 90 per cent of the revenue receipts to 200 per cent, which effectively led to increased borrowing. Reports by the Comptroller and Auditor General in the past years have detailed this.
White paper on power sector
The white paper on the power sector, too, has become a point of contention between the BRS and the Congress. The BRS claims that its government provided 24 hours power supply for agricultural purposes; the white paper puts it at 19.22 hours (April to November 2023). However, this is still a significant leap from the six-hour power supply in 2014-15.
The white paper has also identified financial challenges faced by discoms as a cause of concern, with accumulated losses of Rs.62,461 crore and a debt of Rs.81,516 crore as of March 31, 2023. In its white paper, the BRS listed the value of assets created and the increase in per capita electricity consumption (from 1,196 units in 2014 to 2,140 units in 2023). While there has been a marked improvement in power consumption and supply in Telangana, experts are concerned about the cost. Revanth Reddy has ordered a judicial probe into the BRS government’s power purchase deals.
D. Narasimha Reddy, an expert on development and agrarian issues in Telangana, demanded greater transparency. It is not just about overborrowing and bad or unnecessary loans, he said, but one must have more information on how the BRS acquired these loans and the likely process violations involved.
The consequences of financial strain and the compromises made by the previous government are evident in Telangana. The State’s annual Budget allocations (as a percentage of total expenditure) for health and education are among the lowest in the country. Data from the RBI’s document titled “State Finances: A Study of Budgets” show that Telangana has the lowest spending on education, with the ratio of spending on education to aggregate expenditure falling from 11.2 per cent in 2014-15 to 6.8 per cent (revised estimates) for 2022-23.
- The white paper shows that Telangana’s debt as part of within-Budget borrowings increased to Rs.3,89,673 crore in 2023-24 from Rs.72,658 crore in 2014.
- The total outstanding debt is Rs.6,12,343 crore, with the outstanding debt for Kaleshwaram Irrigation Project Corporation Ltd alone being Rs.74,590 crore.
- BRS leaders refuted allegations about lack of progress and development, stating that the Telangana GSDP had grown from Rs.4.51 lakh crore in 2013-14 to Rs.13.13 lakh crore in 2022-23.
Discussing the avenues available in revenue generation, Vijay said: “One option that the earlier government explored was both land and excise. But both those options have a very adverse medium- to long-term impact on poor households.” According to him, thinking beyond high-value production systems and investments could serve the State better.
In order to address unemployment along with growth, the focus should be on micro, small, and medium enterprises with the goal of reducing the revenue gap, he said.
Meanwhile, pressure is mounting on the Congress to implement its election guarantees soon. Some economists and analysts believe that a phased implementation of the guarantees would be better. However, with the Lok Sabha election round the corner, the Congress may find it difficult to postpone these for long.
Beneficiary enumeration programme
The Telangana government has launched a State-wide beneficiary enumeration programme (Praja Palana) for five out of the six guarantees promised in the Congress manifesto. Between December 28 and January 6, applications were accepted for the Mahalakshmi Scheme (financial assistance of Rs.2,500 to women and gas cylinder for Rs.500), Rythu Bharosa (Rs.15,000 to farmers, including tenants, and Rs.12,000 to agricultural labourers), Indiramma Indlu (Rs.5 lakh financial assistance for building a house), Gruha Jyothi (200 units of free electricity), and Cheyutha (monthly pensions for the aged, disabled, widowed, and so on). The Yuva Vikasam guarantee has been set aside for now.
Officials say the Praja Palana programme will be undertaken periodically and that beneficiary data will be digitised soon.
The opposition has termed the data collection exercise a delaying tactic, but Congress leaders assert that this will ensure that no eligible person is left behind. Nevertheless, there is some uncertainty on the guarantees as the government is yet to announce the eligibility conditions for the six guarantees. The challenge lies in identifying the actual beneficiaries, eliminating the ineligible ones, and having a robust budget, said Narasimha Reddy.
The Rythu Bharosa is expected to cost at least Rs.7,000 crore more than the preceding government’s Rythu Bandhu (Rs.15,000 crore) as the Congress has upped the input subsidy amount by 50 per cent (from Rs.10,000 to Rs.15,000 a year). The party also promised to include tenant farmers as its beneficiaries. The scheme will cost the government more if absentee landlords are not removed from the beneficiary list. In the run-up to the election, Deputy Chief Minister Mallu Bhatti Vikramarka told Frontline that they would find a way to eliminate wasteful spending on absentee landlords. A precise estimate of funds required to provide agricultural workers Rs.12,000 annually is also not yet available. The Congress’ guarantee also includes an additional Rs.500 a quintal for paddy procurement and up to Rs.2 lakh as farm loan waiver. According to official estimates, free bus travel for women is expected to cost Rs.250-300 crore a month, for which the State will reimburse the Telangana State Road Transport Corporation. Civil Supplies and Irrigation Minister N. Uttam Kumar Reddy said recently that the Rs.500 gas cylinder scheme would cost the State exchequer Rs.3,000-Rs 4,000 crore a year.
The Congress has scrapped the BRS government’s Gruha Lakshmi scheme, which offered Rs.3 lakh financial assistance to below poverty line families to construct a house. Instead, the incumbent government guarantees Rs.5 lakh assistance as part of Indiramma Indlu.
The Budget estimate for welfare pensions in the current fiscal year was Rs.12,000 crore. This is expected to double as the Congress has hiked pensions from Rs.2,016 a month (under the BRS’ Aasara scheme) to Rs.4,000 for most beneficiaries (the aged, widowed, beedi workers, and so on). The disability pension of Rs.4,016 a month has now been hiked to Rs.6,000.
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In the run-up to the elections, analysts had warned that Telangana’s revenue would be insufficient to meet the Congress’ six election guarantees due to the increasing debt burden and falling revenue receipts. The white paper on finances says that the percentage of revenue receipts used for debt servicing increased from 14 per cent in 2014-15 to 34 per cent in 2023-24, with 35 per cent of revenue receipts spent on salaries, wages, and pensions (provisional figures). This leaves little to fulfil newer welfare commitments. However, Congress leaders reiterate that they are committed to mobilising finances by improving financial management and curtailing wasteful spending.
Given the State’s liabilities, economists say that a serious rethinking is needed on the options for additional revenues not only to meet debt servicing and day-to-day expenses but also to implement the six guarantees. The Congress government is yet to provide details of the proposed solutions and fixes.
The government has to get highly creative, find revenues without compromising growth potential, and ensure growth without compromising welfare obligations, said Vijay. He sees this as a grave challenge but not an insurmountable one.