Telangana Budget: Neither bold nor beautiful

On Sunday, T. Harish Rao, the Telangana finance minister, presented his maiden budget of a total outlay of Rs 1.82 lakh crore, a combined projected revenue of Rs 1.43 lakh crore (including state revenue, non-tax earnings and central allocations), with a projected fiscal deficit of Rs  33,191 crore, even as the combined state debt, crossing the Rs 2 lakh crore mark for the first time, is estimated to almost touch Rs  2.30 lakh crore.

Let that sink in before you let either the ruling party self-adulation or opposition cynicism drive you towards a verdict. Let us decipher it, in a rare exception to macro economics and matters of state and government, with a filter of common sense and everyday truths.

Imagine as a family, your total income this year was Rs 1.43 lakh and you wish to spend Rs 1.82 lakh, ending with a deficit — a shortfall between earning and spending — of Rs 39,000. Now factor in that your previous debts have added up to Rs 2.30 lakh crore. How healthy would you deem such a unit?

Juxtapose this overall micro picture with the first principle - that the growth of the state, and the country, is slowing down continually. As per Telangana government’s own estimates, or admission, the growth this year would be down from last year’s 14.3 per cent to 12.6 per cent. The basic conclusions are easy to draw: slowing growth, increasing debt, falling revenues and yawning deficit.

If you revert to that family, what focus should its expenditure have? Spend more on day-to-day expenses, like buy new clothes and enjoy a monthly movie, or invest on areas which could give it a status changing power in future, like college education of a child? In the state’s case, the revenue expenditure out of the total outlay is Rs 1.38 lakh crore.

That would be to meet the bill of day-to-day expenses, including recurring liabilities like employee salaries and pensions bill, allowances and perks, maintenance of government assets like buildings, vehicles, and of course, debt servicing, and paying for the welfare side economics. The total asset building, or development side of the budget, (capital expenditure) is Rs 22,061 crore. The total pie in size, the gross state domestic product is estimated at a trifle less than Rs 9.70 lakh crore.

This ratio, with both what it reveals and that which it hides, is the only safe guiding number to analyse the budget and all its sector-wise allocations. Out of `182 it plans to spend, 22 would be on development (1 out 9 approx), while Rs 138 would be operative expenses (including debt servicing, cost of government — employee, assets, and welfare) (or 8 out of 9, with not too much clarity of the breakup between the three).

So, when you read that there is an allocation of Rs 10,000 crore plus for Hyderabad city development, it continues to mean that only 1 out of 9 would be spent on development under this head; while remaining 8 would be spent under this head between debt servicing (fixed financial expenditure), government operations (salaries, pensions, maintenance of buildings and assets, paying utility bills and taxes) and welfare.

Divide the Rs 22,000 crore under all the various heads and you get the sense of facelift and improvement any sub-sector will ideally experience. Now, bring it a notch down when government inefficiency, corruption, inability to spend (a frequent government budgetary feature), and you can largely imagine that the state won’t “develop” too much by next year based on this budgetary truth.

Consider now if the welfare schemes had a way of being measured to showcase their link to transformative impact. For example, the Rythu Bandhu’s impact on rise in farmer income, or Rythu Bima leading to reduction in indebtedness or suicide of ryots, would have been excellent parameters of justifying welfare as a contributing factor to growth in the long run. For example, the spend on education leading to increase on employability of youth and their income earning potential.

The only silver lining in Telangana State’s budget (it is one of the best performing states in the country) could be that water and power could reach every citizen and it is worth all of the budgetary jugglery for more than half-a-decade. Sadly, education and healthcare are still luxuries, beyond the celebration frenzy of numbers and ruling party rhetoric.

Most economists, planners, Keynesians, advocates of mixed economy give very little in terms of guiding principles on what a good Budget ought to be — save for one indicator — the fiscal deficit must be low (typically between one to two per cent). In developing nations, especially at moderate growth and low inflation, a deficit of between three to four per cent is received with mixed emotion: As long as it seen in control, revenues growing and deficit reducing.

What no economist dares to say as principles are — what should be the proportion of a state revenue (and consequently tax revenues) to total GDP, what are the ideal development to welfare ratios (1:1, or 1:2), and above all, what should be the size of the government (cost of government itself — 1:10 of total state revenue, or 1:5)?

In a Keynesian model, a political-bureaucratic nexus based on unaccountability thrives because it is seen as a moral and political license to spend the unearned as a virtue. From being a “means” to set right the “drawbacks” of a free market model, overspending has become an end, an unchallengeable right of the state.

The TRS government must privatise vigorously beyond the non-tax revenue mop-up estimates, mostly through auction of lands around Hyderabad, currently estimated at around Rs 30,000 crore (but rather unrealistic with no clear roadmap with details).

The TRS government must cut costs of government itself, get rid of public sector units and rationalise its welfare spend. It must cut debt and showcase a plan to reduce it progressively.

Like any other Indian politicians, Harish Rao too does not wish to take accountability for any longer a term than his immediate political vision of the next year, and the next election. He does not risk to even dare to raise half the total debt of around Rs 1.15 lakh crore through aggressive privatisation, or cut up to a quarter of the non-development part of the Budget through channelising welfare better or rationalising debt and downing operative costs.

This was therefore not a daring and bold Budget that would transform the state.

This is not a terrible Budget that would impact anyone too negatively. Perhaps, only the long-term future of Telangana state.