Telangana’s Fiscal Freefall: From Surplus to Existential Crisis
Telanagana CM Revanth Reddy with a delegation from Switzerland (Image credit X.com)
Telangana’s Revenue Deficit Soars to ₹26,050 Crore, Fiscal Deficit Breaches 118% of FRBM Target
By P. Sesh Kumar
NEW DELHI, MAY 7, 2025 – Telangana’s fiscal health has deteriorated sharply, with the revenue deficit ballooning to ₹26,050 crore, a stark reversal from the projected ₹297 crore surplus. The fiscal deficit, now at ₹58,586 crore, exceeds 118% of the FRBM target, while annual interest payments surpassing ₹60,000 crore push the interest-to-revenue receipts ratio above 20%, signaling significant financial strain.
In a moment of rare candour, Telangana Chief Minister Revanth Reddy admitted on Monday, “Even if you cut me into pieces, I can’t raise more than ₹18,500 crore per month.” That stark declaration exposed a monthly shortfall of ₹4,000 crore against the state’s obligations of ₹22,500 crore.
For a state that began its journey in 2014 with fiscal optimism and a surplus, this is nothing short of an existential crisis. The fiscal deterioration of Telangana has been as swift as it is severe. Outstanding debt has surged from ₹72,658 crore in 2014–15 to ₹6.71 lakh crore by the end of 2023–24.
A significant portion of this rise comes not from conventional budgetary loans, but from off-budget borrowings—liabilities contracted by public sector corporations on behalf of the state, often without adequate legislative scrutiny.
The Comptroller and Auditor General of India (CAG), in its State Finance Audit Reports for Telangana for the years ending March 2020 and 2021, was unequivocal in its criticism. The reports noted that the Government of Telangana had undertaken substantial borrowings through Special Purpose Vehicles (SPVs) such as the Telangana State Water Resources Infrastructure Development Corporation (TSWRIDC) and the Telangana State Power Finance Corporation (TSPFC).
These entities had raised loans on the strength of state government guarantees, yet neither the liabilities nor the associated interest obligations were shown in the Consolidated Fund of the State—thereby violating Article 293(3) of the Constitution and undermining transparency in public finances.
The CAG also observed that the state was using budgetary grants to service these off-budget borrowings, further distorting the true fiscal picture. It warned that such practices “obfuscate the reality of fiscal indicators such as fiscal deficit and debt sustainability” and compromise long-term financial discipline.
The Government’s response to the CAG’s concerns was defensive. It justified the off-budget borrowing spree as a necessity to fund transformational infrastructure, particularly the Kaleshwaram Lift Irrigation Scheme (KLIS), which has alone accumulated debt of ₹97,449 crore at an average interest rate of 9.69%.
The state argued that the loans would yield long-term developmental returns and did not merit alarm. However, the Public Accounts Committee (PAC) of the Telangana Legislature took a more cautious stance.
Acting on the CAG’s audit findings, the PAC recommended that all off-budget borrowings be fully disclosed and accounted for within the state budget. It urged the government to publish a comprehensive register of guarantees issued, to ensure legislative and public oversight. Most crucially, it called for independent third-party evaluation of large projects like KLIS to assess whether the fiscal risks taken were justified by tangible outcomes.
The KLIS itself, once presented as a symbol of Telangana’s engineering ambition, has become a fiscal albatross. Initially estimated at ₹35,000 crore, the project’s cost spiralled to over ₹1 lakh crore. The National Dam Safety Authority recently flagged concerns about the collapse of the Medigadda pump house, raising doubts about structural design and execution.
With no significant irrigation expansion commensurate with the investment, KLIS now appears more like a financial sinkhole than a water lifeline.
The broader fiscal numbers tell an equally troubling story. Telangana’s revenue deficit has widened to ₹26,050 crore, reversing the surplus of ₹297 crore projected earlier. The fiscal deficit, estimated at ₹58,586 crore, exceeds 118% of the target under the Fiscal Responsibility and Budget Management (FRBM) Act. Meanwhile, interest payments now consume over ₹60,000 crore annually, pushing the interest-to-revenue receipts ratio above 20%, well beyond prudent thresholds.
Despite this financial stress, capital expenditure—critical for long-term economic growth—has been slashed. Infrastructure projects have stalled, pending bills to contractors have mounted, and key welfare schemes such as Rythu Bandhu and Dalit Bandhu face delayed disbursements or funding cuts.
State government employees have complained of delays in salaries and pensions, and power utilities are on the verge of default.
Political blame has become the currency of the day. The Congress-led government blames the former BRS regime for mortgaging the state’s future through reckless borrowing and opaque financial practices.
The BRS defends its record, citing rapid GSDP growth, expanded power and irrigation coverage, and enhanced rural incomes. But electoral rhetoric cannot settle account books.
The state now needs a course correction rooted in fiscal realism. First, it must adopt the PAC’s recommendation of publishing a White Paper on Public Finances. This should comprehensively disclose outstanding liabilities—both on-budget and off-budget—as well as guarantees, dues to power utilities, contractor payments, and unfunded welfare commitments.
Second, Telangana must urgently halt the practice of borrowing through PSUs and SPVs without legislative approval. As the CAG rightly pointed out, this violates constitutional norms and undermines public trust in budgetary transparency.
Third, revenue augmentation must be a priority. Telangana’s tax base is narrow, and potential areas such as property tax, mining royalties, and excise revenues remain underexploited.
A focused drive to widen and deepen revenue collections could help close the gap.
Fourth, the state should revisit its capital projects portfolio. Independent audits must determine whether large investments like KLIS, Mission Bhagiratha, and T-Hub 2.0 are yielding measurable returns. Those that do not must be put on hold or restructured.
Finally, a structural reform of the Finance Department is overdue. Telangana needs a dedicated debt management cell, real-time fiscal dashboards, and performance-linked budgeting. The budget-making process must become more evidence-based and subject to third-party review by academic and professional bodies.
The CAG has done its job. The PAC has amplified the concerns. The political leadership must now walk the hard path of fiscal correction, even if it means unpopularity in the short run. The price of delay will be borne not by ministers, but by citizens—through crumbling infrastructure, interrupted welfare, and an eventual loss of investor confidence.
Telangana’s journey from surplus to struggle offers a powerful lesson: fiscal opacity is not just poor governance; it is a slow-moving disaster. If the state is to rediscover its growth momentum, it must first rediscover the virtue of financial honesty.
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