White Paper: 'No money to meet daily expenses': Bhatti Vikramarka paints grim picture of fiscal budget

Hyderabad: Deputy Chief Minister Bhatti Vikramarka today said Telangana has no money to meet the daily expenses.

“There is no money to meet the daily expenses and it is important to discuss the finances of the Telangana state," said Vikramarka in the Legislative Assembly.

On Wednesday, the white paper on Telangana finances was submitted by the Congress government in the House.

The white paper summarizes the state of finances in Telangana as of December 2023. The paper aims to present in a simple and easily understandable language - the financial position of the state, as inherited by the present government. The objective is to foster public debate, informed by facts so that the state finances are managed in a fiscally responsible and prudent manner.

Presenting the White Paper, Bhatti Vikramarka said, the situation of the state started changing quite drastically once the off-budget borrowings started being mobilized in the name of mega projects including Kaaleshwaram, Palamuru Rangareddy, Sitarama, and Mission Bhagiratha.

Special Purpose Vehicles (SPVs) were created to mobilize the necessary resources for undertaking these mega capital-intensive projects.

"The Budget Management Act was amended in 2020 so that the quantum of guarantees that could be given by the state government was enhanced consequently from 90% of revenue receipts to 200%. Large-scale mobilization of the off-budget borrowings and lack of revenues to the SPVs meant that effectively the government-guaranteed loans were being serviced by the government itself from the budget resources. This meant a rapid increase in the debt servicing by the state. Therefore, the balance of fiscal space available for the welfare and development of the state of Telangana came down year by year," said the Deputy CM.

During the session, the quality of the budget-making exercise in terms of the Budgeted vs. Actual was analyzed. The state has performed very poorly in terms of fiscal marksmanship. Next, the paper presents the expenditure done in the Telangana region of the united Andhra Pradesh from 1956 onwards. The assets that are created due to these resources spent are also listed. The performance of the state under the revenue deficit and fiscal deficit parameters and also in terms of expenditure on important sectors such as education and Health is presented.

Budget Vs Actual Expenditure:

The budget estimates of government expenditure are planned expenses for the budgeted year prepared in the previous fiscal.

Since the formation of Telangana in FY 2014-15, the Budget estimates and actual expenditure figures of the state saw an upward trend. Starting with ₹1,00,638 crore in FY 2014-15, the budget estimates grew to ₹2,56,859 crore in FY 2022-23.

The actual expenditure figures also witnessed an ascending pattern from ₹62,306 crore in FY 2014-15 to ₹2,04,085 crore in FY 2022-23.

The percentage share of actual expenditure in the overall budget estimates, however, is worrisome. Actual expenditure as a percentage of Budget estimates was at its lowest level (61.9%) in FY 2014-15. In the period between 2014 and 23, on average, Telangana spent only 82.3% of the budgeted expenditure.

In FY 2021-22 (Table 2), Telangana had one of the highest gaps between the budgeted and actual expenditure among General States With the state spending only 79.3% of its estimated budgeted expenditure in that year, its performance was the second worst, with only Punjab having a lower proportion of actual expenditure to budget estimates (at 74.7%) than Telangana.

To place the matter in perspective, the gap between Estimates and Expenditure was about 20% over the years for the new Telangana state, whereas the corresponding figures for other States in this period were only about 5%.

Table 2

In comparing the undivided state of Andhra Pradesh, on average, the difference between budgeted and actual expenditure was only 13%.

The inability of the Telangana government to attain the budgeted expenditure can be attributed to a shortfall in collections compared to the budgeted revenue receipts.

Table 3

Resources spent in United AP:

In the period FY 1956-57 to FY 2013-14, before the bifurcation of Andhra Pradesh, Telangana’s share in the combined state’s expenditure increased from ₹33 crores to ₹56,947 crores. This was a phenomenal increase over 57 years, wherein the total expenditure grew at an annual average rate of 14.9%. Notably, the total revenue receipts in the state also grew by 14.9% in this period.

Table 4

Telangana saw the creation of crucial assets with this expenditure. Among them are key infrastructure projects such as the Outer Ring Road and Rajiv Gandhi International Airport. Additionally, essential irrigation projects like Nagarjuna Sagar Dam, Jurala, Koilsagar, Devadula, Sriram Sagar, and Kadem were undertaken. Notably, multiple drinking water initiatives for Hyderabad City from Manjeera, Krishna, and Godavari rivers across different phases (Phase I, Phase II, and Phase III) were successfully executed.

Additionally, universities and medical colleges across various districts, and hospitals like NIMS, RIMS, Gandhi Hospital, MGM, and KMC were established and operationalized. In addition, extensive infrastructure developments such as roads, buildings, drains, and power lines were undertaken to support the growth of the state.

Although these institutions were established by the Central government or the private sector, it's noteworthy that the State Governments played a crucial role by providing land, other necessary facilities, and appropriate incentives, contributing significantly to their establishment and

In the period between 1956 and 2014, United Andhra Pradesh witnessed sixteen Chief Ministers. At the time of Telangana's formation, the outstanding debt stood at a modest ₹72,658 crores. However, the current state of affairs reveals a significant escalation in debt.

Presently, the state's standalone debt has surged to ₹3,89,673 crores, and when considering the debt of the special purpose vehicles (SPVs) serviced by the Government, the actual debt rises to ₹5,16,881 crores. Furthermore, incorporating contingent liabilities guaranteed by the government, the total debt skyrockets to ₹6,12,343 Crore.

Outstanding debt trends:

Rising expenditures in Telangana, not matched by a proportionate increase in revenues, have led to increasing fiscal deficits. These fiscal deficits needed to be funded through borrowings, which in turn, has led to the state accumulating an increasing amount of debt each year.

The state started with an outstanding debt of Rs. 72,658 crores in FY 2014-15, which increased at an annual average rate of 24.5% between FY 2014-15 and FY 2022-23, reaching an amount of Rs. 3,52,061 crores by FY 2022-23(RE).

Further, as per budget estimates for FY 2023-24, the debt is estimated to increase to Rs. 3,89,673 crores.

Table 8

After the formation of the state in the last 10 years, the total debt of the state has gone up to & 6,71,757 crore from 72,658 crore in 2014-15

Govt guaranteed loans raised by SPV:

A total of 17 SPVs and institutions have raised an amount of ₹1,85,029 crores 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.

A total of 17 SPVs and institutions have raised an amount of ₹1,85,029 crores 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. These include the Kaleswaram Irrigation Project.

Table 10

Increase in debt:

The total debt servicing burden of Telangana has increased significantly over the last nine years. For the ‘within budget’ component, the combined principal and interest burden amounted to ₹ 6,954 crores in FY 2014-15. Thereafter, there was double-digit growth in these payments in all years except FY 2020-21. Growing at an annual average rate of 22%, the total debt servicing burden of the state (within budget) reached ₹32,939 crores in FY 2023-24.

Table 13

Another point of concern is that the top five corporations/entities, which account for 95% of the outstanding government guarantees, availed loans from various financial institutions at average interest rates in the range of 8.93% - 10.49%. This is much higher when compared with the average interest rate of 7.63% for Open Market Borrowings (OMB). As these corporations do not have a significant revenue source of their own, the government is effectively bearing the higher interest burden, further constraining the financial situation.

Expenditure on Salary and Pension:

Overall, the expenditure on salaries and pensions has almost tripled from Rs. 17,130 crores in FY 2014-15 to ₹ 48,809 crore in FY 2021-22. As of FY 2021-22, these components account for 38% of the total revenue receipts, which is only expected to increase with the upcoming pay revision commission’s recommendations, filling of vacancies, and payment of dearness allowance arrears.

Table 18

Fiscal Deficit:

The state’s receipts fell short of its expenditure by ₹ 9,410 crores in FY 2014-15. This deficit doubled to ₹ 18,856 crore in FY 2015-16, and close to doubled again in FY 2016-17, reaching a value of ₹ 35,281 crore. Between FY 2014-15 and FY 2021-22, the fiscal deficit of the state grew at an average annual rate of 33.1%.

On account of this, in FY 2021-22, the shortfall in the state’s revenues in comparison with its expenditure was nearly 5 times the shortfall in FY 2014-15.

Table 21

Expenditure on Health:

In FY 2023-24, Telangana is estimated to spend only 5% of its overall budgeted expenditure on Health & Family Welfare, ranking it as 4th lowest in #India and falling 1.2% points below the national average of 6.2%

During the session, Pro-tem Speaker of Telangana Legislative Assembly Akbaruddin Owaisi asked for a tea break of 30 minutes. He said the financial situation put across in August 2023 and the white paper by the Congress government need to be compared.