Telangana’s Reliance on Loans Increases

Hyderabad: The state government's financial burden has escalated significantly in the ongoing fiscal year 2024-25, primarily due to rising expenditures on employee salaries, pensions for retired staff, interest on loans, and subsidies for the poor.

As a result, the state's fiscal deficit has surged beyond Rs 23,000 crore in just the first four months of the financial year (April-July 2024-25), forcing the government to resort to heavy borrowing to bridge the growing gap between revenue earnings and expenditure.

According to data from the state’s finance department, between April and July 2024, the state government spent Rs 14,724.84 crore on salaries for employees. This marks a significant increase compared to Rs 13,686 crore spent in the same period last year.

Similarly, pension payouts for retired government staff reached Rs 5,741.72 crore, up from Rs 5,461.89 crore during the corresponding period in the previous fiscal year.

Loan interest payments have surged, with Rs 8,192 crore allocated to servicing debt in the first four months of this fiscal year, compared to Rs 7,174 crore in the same period last year. This increase reflects the state’s increased debt load during the previous BRS regime, which is exacerbated by its widening fiscal deficit.

Expenditure on subsidies, primarily aimed at providing financial assistance to the poor, has also witnessed a steep rise. The state government spent Rs 4,294 crore on subsidies in the first four months of FY 2024-25, a notable jump from Rs 3,424 crore in the same period last year. This increase is attributed to expanded social welfare programmes aimed at alleviating poverty, though it adds to the state’s financial burden.

The widening gap between revenue earnings and expenditures has resulted in a ballooning fiscal deficit, which stood at Rs 23,563.71 crore by the end of July 2024. This figure represents 47.84 per cent of the total fiscal deficit of Rs 49,255 crore projected for the entire fiscal year, according to the budget presented in the Legislative Assembly in July. The fact that nearly half of the full-year deficit has been accumulated within just four months raises concerns about the government’s fiscal health.

To cover its growing fiscal deficit, the state government has been forced to increase its borrowing. Typically, the government takes loans in the range of Rs 4,000 crore to Rs 5,000 crore each month. However, in July alone, the government borrowed Rs 10,392.71 crore, a stark indication of the financial pressure it faces.

Official sources attribute this to the crop loan waiver scheme implemented by the state government in July for which nearly Rs 18,000 crore was spent to waive crop loans of farmers up to Rs 2 lakh each.

The government’s reliance on fresh loans has also inflated its overall revenue figures. Out of the total revenue earnings of Rs 71,290 crore recorded in the first four months of the fiscal year, Rs 23,563 crore came from loans. Earnings from taxes, non-tax revenues, and central grants accounted for Rs 47,727 crore.

The state's budget for FY 2024-25 had projected a revenue surplus of Rs 293 crore. By the end of July, the state had instead slipped into a revenue deficit of Rs 11,328 crore. This stark contrast with budget projections highlights the growing financial strain on the government. For comparison, the Comptroller and Auditor General (CAG) had pegged the state’s revenue deficit at Rs 3,458 crore for all of 2023-24.

The state's total expenditure during the first four months of 2024-25 stood at Rs 66,666 crore, up from Rs 63,607 crore during the corresponding period in the previous fiscal year. With expenditure consistently outpacing revenue earnings, the government’s fiscal challenges are deepening, forcing it to rely heavily on borrowing.

The significant rise in fiscal pressure has raised questions about the state’s fiscal management and its ability to meet the budgeted targets. With nearly half of the full-year deficit already realised, and expenditure continuing to rise, the government may have to consider implementing stringent fiscal measures, including expenditure rationalisation and boosting revenue generation, to avert a potential fiscal crisis in the remaining months of the year.