White Paper on Telangana finances puts cumulative debt burden at ₹6.7 lakh crore

The outstanding debt of the state (without off-budget borrowings) is expected to touch ₹3,89,673 crore at the end of the financial year 2023-24.

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Debt-to-GSDP ratio

The state began with an outstanding debt of ₹72,658 crore in 2014-15, which increased at an annual average rate of 24.5 percent between 2014-15 and 2022-23, reaching an amount of ₹3,52,061 crore by 2022-23 (revised estimates). As per budget estimates for 2023-24, the debt is estimated to increase to ₹3,89,673 crore.

The debt-to-GSDP (Gross State Domestic Product) ratio of the state was one of the lowest in the country in 2015-16 at 15.7 percent. By 2023-24, the ratio went up to 27.8 percent. It has almost doubled in eight years, the White Paper stated.

The debt-to-GSDP ratio has had an overall increasing trend over the years, averaging 21.5 percent over 2014-22 period. Further, in 2020-21 and 2021-22, the state failed to contain the debt-to-GSDP ratio within the 25 percent ceiling recommended under the Fiscal Responsibility and Budget Management (FRBM) Act, the White Paper said.

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Off-budget borrowing

The outstanding debt of ₹3,89,673 crore does not include the off-budget borrowings of the government. Off-budget borrowings include loans availed by entities outside of the government system but guaranteed by the state.

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 the government guaranteed loans raised by SPVs (special purpose vehicle) but serviced by the government are added, the debt-to-GSDP ratio would increase to 36.9 percent.

The government-guaranteed loans raised by SPVs and serviced by the government:

A total of 17 SPVs and institutions have raised an amount of ₹1,85,029 crore through off-budget borrowings. As these institutions do not have sufficient revenue to service the debt, the government is supporting them to pay back the principal and interest.

As of today, the total outstanding debt in this category is ₹1,27,208 crore. 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.

The government-guaranteed loans raised by SPVs and serviced by the SPVs:
A total of 14 SPVs and institutions have raised an amount of ₹1,18,557 crore through off-budget borrowings which are guaranteed by the government. As these institutions have revenues to service the debt, they can pay back the principal and interest. As of today, the total outstanding debt in in this category is ₹95,462 crore.

Non-guaranteed loans raised and serviced by SPVs and corporations and institutions:
There also exists a third category of loans taken by corporations that are not guaranteed by the government. They are repaid by the corporations themselves without any debt servicing burden on the government. As on date, the total outstanding debt in this category is ₹59,414 crore, the White Paper said.

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What do the numbers tell us?

The White Paper said that there was a gap of almost 20 percent between the budgeted and the actual expenditure. This figure is not only high when compared to other states, but also in comparison to the expenditure achieved in United Andhra Pradesh.

This gap in expenditure between the budget and actuals has meant that there is an accumulation of committed expenditure, in terms of payments made for the services rendered by the suppliers and contractors, and also to the employees.

Further, there is a huge gap between the budgeted and actual money spent on major welfare schemes such as Dalit Bandhu and other welfare programmes.

In United Andhra Pradesh, over a period of 57 years, an amount of ₹4.98 lakh crore was spent for development of Telangana region. With this money, substantial and tangible assets, in terms of roads, irrigation projects, educational institutions, hospitals, and power projects were created.

In addition, the state facilitated — by giving land and incentives — central public sector undertakings and defense establishments, thus paving the way for Hyderabad to be a pharma, defence, and IT major in India.

In contrast, after the formation of the state, in the last 10 years, the total debt of the state and the SPVs has gone up to ₹ 6,71,757 crore from ₹ 72,658 crore in 2014-15. 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.

Further, no tangible fiscal assets in proportion to the money spent were created in the past 10 years.

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Little to no breathing space

The debt servicing burden of funds borrowed on the budget and off-budget has increased enormously and is consuming 34 percent of the state’s revenue receipts. Further, the salaries and pensions of employees consume another 35 percent of the state revenue receipts.

This committed expenditure has meant that very little fiscal space is available for undertaking any welfare measures for the poorer sections of society and growth enhancement measures for the development of the economy.

Due to the increased fiscal stress, the state has to depend on the ways and means advances (WMA) from the RBI on a daily basis.

From a situation where the state had positive balances for 100 percent of the days in 2014, to a situation where the state has positive balances in less than 10 percent of the days shows the enormous fiscal stress.

Consequently, the state has not been able to spend enough money on critical sectors such as Education and Health, where the budgeted amount as the proportion of the total expenditure is amongst the lowest in the country.