Telangana stares at debt trap

Hyderabad: With its outstanding loans piling up each passing month, Telangana state is reeling under its interest burden. While the state government has earmarked Rs 7,554 crore in the Budget this year (2015-16) to pay the interest alone, it is feared that this may have to be raised to Rs 8,500 crore next year (2016-17).

Going by the pace at which the TS government is securing loans at present, it will have to shell out over Rs 50,000 crore towards interest alone in the next five years. Officials say it’s an alarming trend, wherein the growth of interest payments will be faster than the rate of growth of the economy in the coming years.

As per the latest report prepared by the finance department on the financial condition of the state, the government paid Rs 5,184 crore towards interest on loans during the first year of formation of the state in June 2014, to March 2015 (a 10 month period).

Due to severe financial constraints this year (2015-16), the government could pay only Rs 1,235 crore interest so far with much difficulty, though it had earmarked Rs 7,554 crore in the Budget  and there are only four months left for the current fiscal to end.

TS inherited a debt burden of Rs 67,359 crore from undivided AP when outstanding loans were distributed between the two states in the ratio of 58:42.

This apart, TS has borrowed nearly Rs 60,000 crore in 15 months. Of this, Rs 24,000 crore was secured through sale of bonds and nearly Rs 40,000 crore raised through various funding agencies, at interest rates as high as 11 per cent. This year alone, over Rs 11,000 crore was mobilised through auction of bonds with RBI.

“Though the government could mobilise funds easily with auction of bonds with RBI at lower interest rates, we should realise that we have to pay the interest accrued on them once every three months for 10 years. After 10 years, the principal amount has to be paid in one go. The situation will only worsen with interest burden mounting every passing month in the coming five years,” said an official of finance department.

As if this is not enough, the TS government has plans to obtain another Rs 25,000 crore loan from the newly-established BRICS bank, headquartered in China.

It was decided to utilise these funds for development of infrastructure facilities in GHMC limits under which new multi-grade separators, sky-walks, flyovers are planned to ease traffic congestion on busy junctions.
 

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