On Sunday, December 24, former Telangana Minister KT Rama Rao who was the face of Bharat Rashtra Samithi’s (BRS) unsuccessful election campaign this year, released a ‘Swedha Patram’ (‘a document of sweat’), while accusing the present Congress government of maligning the party. This was a rebuttal to the White Paper (Swetha Patram) on Telangana state finances by the Congress government, released two weeks after coming to power. The White Paper painted the state as severely debt-ridden, citing figures from state budgets, the Reserve Bank of India (RBI) and the Comptroller and Auditor General of India (CAG).
KTR’s reply, while citing various numbers as proof of BRS government’s achievements, also heavily banked on rhetoric. Congress’s White Paper alleged that in the past decade when BRS was at the helm, there wasn’t much “visible and substantial infrastructure development” that justifies accumulation of a huge debt. KTR responded by saying that former Chief Minister K Chandrashekar Rao had created not just assets but also an identity for Telangana. After prefacing his speech with visuals depicting the role played by BRS leaders in the Telangana statehood movement, KTR drew attention to the 125-foot-tall statue of Dr BR Ambedkar built at the centre of Hyderabad and asked, “This is a symbol of the self-respect of Dalits and other oppressed communities in Telangana. How do you put a value on this?”
A White Paper is supposed to be a statement of facts and possible solutions but the one brought out by the Congress wasn’t free from political narratives. It suggests that the Telangana region’s finances were better managed before its formation by previous Telugu Desam Party (TDP) and Congress governments, and that Telangana’s share of financial resources in undivided Andhra Pradesh was in fair proportion to its population. This was contrary to one of the main grounds for the statehood demand.
While the White Paper indicates that BRS has veered the state towards a financial crisis with a heavy debt burden, economists point out that Congress is yet to elaborate how it plans to implement its promises ranging from farm loan waivers to free power supply. The White Paper states that less than 30% of the state’s revenue receipts are available for welfare programmes and any measures for the development of the economy, after accounting for debt servicing and other expenses. Economists say that while some of the allegations made in the White Paper, particularly about excessive poorly planned borrowings, are true, it is unfair to say that BRS did not create tangible assets. Here are some of the main arguments made by the Congress in the White Paper and how BRS responded to it, and what economists have to say about the political rhetoric from both sides on the state’s finances.
‘Flawed, over-optimistic’ budgets
The White Paper shows that since 2014-15, Telangana has consistently overestimated its planned expenses and has ended up spending way less in the annual budget. While the actual expenditure as a percentage of budgeted estimates has ranged between 62% and 97.5% in the past nine years, overall, the figure stands at 82.3%. Congress has pointed out that in the same period, the Union government has spent 103% of its budgeted estimates, and that Telangana is among the states spending the lowest percentage of budgeted expenditure in 2021-22.
This figure, the White Paper notes, “indicates the quality of the planning process and adherence to budgetary discipline.” While economists agree that this is indeed a bad sign, as it points to an overestimation of revenue receipts and budgeted needs of certain departments going unmet, Professor RV Ramana Murthy from the University of Hyderabad’s School of Economics notes that this is not a new trend and has been the case in undivided Andhra Pradesh for several years now. “This has been the trend in the Telugu states for nearly 20 years now, and BRS alone can’t be blamed for this,” he said.
The White Paper itself shows that from 2004 to 2014, the decade before Telagana’s formation, Andhra Pradesh had spent 87% of its budgeted expenditure. In 2020-21, while states like Rajasthan, Karnataka, Madhya Pradesh and Kerala spent more than the budgeted amount, Telangana spent only 79.3%. Andhra Pradesh too spent only 83.4% – two places behind Telangana.
The trend of reducing expenditure on education and health since 2014 has also been noted by CAG and RBI, and is mentioned in the White Paper too.
Resources spent on Telangana region pre-2014 in undivided Andhra Pradesh
The White Paper claims that since the formation of Andhra Pradesh in 1956 and till its bifurcation in 2014, Telangana’s share in the combined state’s expenditure was Rs 4.98 lakh crore or 42%, exactly in proportion to the population of Telangana as per the 2011 Census. KTR dismissed these calculations as incorrect, while claiming that even by these figures, the expenditure on Telangana increased drastically under BRS rule to over Rs 13.7 lakh crore in ten years. While the figures cannot be directly compared without adjusting for inflation, KTR also brought up the reports of Kumar Lalith Committee and later the Justice Vashishta Bhargava Committee constituted in 1969, both of which found that between 1956 and 1968 alone, at least Rs 28 to 24 crore of surplus funds from the Telangana region were spent on Andhra Pradesh.
Agreeing with KTR’s rebuttal, Ramana Murthy said that Congress cannot ignore the uneven economic development in the Telangana region when it was part of undivided Andhra Pradesh as this was one of the main reasons for the statehood agitation.
The Congress government also argued that in the 58-year-period from 1956 to 2014, when undivided Andhra Pradesh was mainly under Congress rule (and TDP rule for about 15 years), Telangana saw the creation of crucial assets. It named infrastructure projects such as the Outer Ring Road and Rajiv Gandhi International Airport, various irrigation and drinking water projects, educational institutions, and also Union government-run organisations like Defence Research and Development Organisation (DRDO), Bharat Heavy Electricals Limited (BHEL), Electronics Corporation of India Limited (ECIL), Centre for Cellular & Molecular Biology (CCMB), etc., taking credit for providing land and incentives for such projects.
K Laxminarayana, an Economics Professor at the University of Hyderabad, said that it is incorrect of Congress to claim that no assets were created by the BRS government since 2014, pointing to the drinking water project Mission Bhagiratha and the minor irrigation infrastructure project Mission Kakatiya which have yielded visible results.
KTR in his rebuttal spoke about Telangana’s high per capita income, but economists have pointed out that there are very wide income disparities across regions and communities in the state, which makes this an unreliable indicator of growth. He also brought up the appreciation of land and real estate values under BRS. “The value of a 2BHK worth Rs 8 lakh has surged to Rs 50 lakh. Land values have witnessed a substantial surge owing to irrigation and village development. The present value of 1.52 crore acres of patta land has increased at least five times,” the ‘sweat document’ said. Laxminarayana said that while this may well be true for some regions, these are not directly related to the public debt being discussed in the White Paper and is therefore irrelevant.
Declining revenue receipts
The White Paper said that Telangana’s revenue receipts, which make up a huge portion of the government’s revenues, are unsatisfactory. Revenue receipts are revenues that don’t create any liabilities or reduce the government’s assets. They include the State's Own Tax Revenue (SOTR), grants and share of taxes from the Union government, and non-tax revenue. Congress noted that Telangana’s revenue receipts-to-gross state domestic product (GSDP) ratio had declined even before the pandemic, and in 2020-21, it was 3.3 percentage points lower than the India General States average (14.6%), and ranked sixth from the bottom.
At the same time, Telangana’s share of the State’s Own Tax Revenue as a percentage of the total tax revenue was among the highest-ranking states next to only Haryana, as per RBI’s latest study of state finances based on their Budgets. KTR has repeatedly sought more funds and budget allocations from the Union government while alleging that the state has gotten a raw deal. Former Finance Minister Harish Rao had also complained on many occasions that Telangana is one of the states receiving less than its deserved share when it comes to devolution of taxes from the Union government under the GST regime.
The central argument of the White Paper is that under the BRS government, the state has become debt-ridden. It argues that in the last nine years, the state’s rising expenditures were not matched by a proportionate increase in revenues, and the government had to borrow more and more to make up for this deficit. Apart from borrowings within budget, off-budget borrowings in the name of large-scale irrigation projects such as Kaleshwaram and Palamuru Rangareddy and other works by setting up Special Purpose Vehicles (SPVs) also increased the debt service burden – the principal repayment and interest payments borne by the state – the paper said.
A considerable amount of loans borrowed by Special Purpose Vehicles (SPVs) but guaranteed by the government are now being serviced by the government itself through its budgetary resources. This is because the SPVs were unable to generate revenues to make repayments on their own. These include the Kaleshwaram Irrigation Project Corporation Ltd, the Telangana State Water Resources Infrastructure Development Corp Ltd, the Hyderabad Metropolitan Water Supply and Sewerage Board, etc.
While the current outstanding debt on the books of the state is Rs 3.89 lakh crore, after adding government-guaranteed loans raised by SPVs and serviced by the government (Rs 1.27 lakh crore) and not serviced by the government (Rs 0.95 lakh crore), the outstanding debt adds up to Rs 6.12 lakh crore. And while the average interest on open-market borrowings is about 7.63%, the off-budget borrowings have higher interest rates. The top five entities accounting for 95% of the outstanding government guarantees have availed loans at average interest rates of 8.93% to 10.49%, the White Paper said. The Kaleshwaram Irrigation Project Corporation Ltd, for instance, has an outstanding loan of Rs 74,590 at an average interest rate of 9.69% as of December 1, 2023.
The debt-to-GSDP ratio (for borrowings within budget), which indicates the state’s ability to repay its debt, has gone up from 14.4% at the time of Telangana’s formation to 27.8% in the current financial year. As this ratio increases, the risk of default goes up. Yet, compared to the national average, Telangana has ranked among the bottom five states on debt-to-GSDP ratio in recent years.
However, when loans raised by SPVs but serviced by the government are added, the debt-to-GSDP ratio increases to 36.9%.
CAG too in its State Finances Audit Report for 2020-21 said that when considering off-budget borrowings and other liabilities to be serviced from the state budget, the debt-to-GSDP was 38.10% – way above the 25% target as per the Telangana State Fiscal Responsibility and Budget Management (TSFRBM) Act, and also exceeding the 29.5% norm prescribed by the 15th Finance Commission.
In 2022, RBI also raised concern that states like Telangana had issued guarantees amounting to over five percent of their GSDP and that Telangana had the “highest contingent liabilities to GSDP ratio” at around 9.4%.
So then, what does this mean for the state when it comes to repayments?
The percentage of revenue receipts spent on repaying the principal and interest on loans within and outside the budget has shot up from 14% when Telangana was formed to 39% in FY 2022-23. Laxminarayanaa attributes this to wasteful, excessive expenditure on projects like Kaleshwaram – which has also been flagged by CAG – as well as a lack of foresight in ensuring revenue sources, especially for the SPVs.
As per the estimates for FY 2022-23, 39% of revenue receipts are expected to be spent on debt servicing, and 35% on salaries and pensions, leaving only 26% for welfare programmes and other works. “To implement its six guarantees and other promises properly, Congress may end up overlooking other expenses like road works etc. or put them off till the next election year,” Ramana Murthy said, adding that without long-term fixes and better overall fiscal planning, the Congress government is only likely to continue the pattern of mismanagement. Rather than rushing to implement all guarantees immediately, it would be more sustainable to work out allocations slowly on a short-term basis at first, so as not to push the state into deeper debt, Laxminarayana said.