Telangana stares at debt crisis

With the loans already being raised by the Telangana government, every person in the state has a debt burden of around Rs 37,000

Hyderabad: Even as the Chief Minister repeatedly asserts that Telangana is a rich state with revenue surplus, the government has been obtaining loans by sale of bonds from the market and from Rural Electrification Corporation (REC), Power Finance Corporation (PFC), World Bank, etc. During 1956-2014, the undivided state of Andhra Pradesh had a loan burden of about 1.8 lakh crore.

The state of Telangana is expected to be saddled with Rs 70,000 crore burden after the debt burden is shared between the two successor states as per Andhra Pradesh State Reorganisation Act. Thus, the new state of Telangana was born with a debt burden of Rs 70,000 crore. It means, every person in Telangana has a debt burden of Rs 20,000.

With the loans already being raised, the per capita loan burden in Telangana is expected to be over Rs 37,000. The Forum for Good Governance obtained information under the Right To Information Act about the market borrowings and other loans the Telangana government has taken since June 2014.

This official information reveals the perturbing levels of debt burden on the Telangana state. The Rural Electrification Corporation (REC) has provided loans for Thermal Projects to the tune of Rs 24,000 crore to the Telangana government at 11 percent interest.

Which is only 0.5 percent less than the normal interest rate of 11.5 percent. As a part of this loan, a cheque for Rs 16,071 crore was already handed over to the Chief Minister by REC CMD Rajeev Sharma on August 21, 2015.

In addition to this, the Telangana government has taken a loan of Rs 4000 crore from the Power Finance Corporation (PFC) for setting up power plants. Besides, the Telangana government has also approached the World Bank for loans. The negotiations are underway. The official sources say that it expects a loan of Rs 10,000 crore from the World Bank.

The government has raised a debt of Rs 23,000 crore from the sale of bonds at 9 percent interest. Thus, the Telangana government has exhausted the permitted limit of borrowing under the Fiscal Responsibility and Budget Management (FRBM) Act.

Planning to borrow more loans, the state government has already written to vice-chairman of Niti Ayog for relaxation of borrowing limit.

As per the FRBM Act, a state government can borrow to the extent of 3 percent of its Gross State Domestic Product (GSDP). The Telangana government has requested the Niti Ayog to raise the limit to 3.5 percent of the GSDP. The decision of the Niti Ayog is still pending.

M Padmanabha Reddy, secretary, Forum for Good Governance, said that about Rs 61, 000 crore is the loan under pipeline during 15 months of inception of state of Telangana. The Forum for Good Governance lamented that the state‘s own tax and non-tax revenues are gobbled up by growing non-plan expenditure leaving the government to depend on loans for infrastructural projects.

But, this would entail huge fiscal burden on the state. However, the government continues to defend on the borrowing spree as the fiscal resources thus raised are spent for capital expenditure.