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Analysing Telangana State Finances: Elongation of Term to Maturity of Debt to Sustain Economic Growth

Anindita Ghosh () and Lekha cHAKRABORTY ()
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Anindita Ghosh: National Institute of Public Finance and Policy

Working Papers from National Institute of Public Finance and Policy

Abstract: Telangana, the new State of India, was formed on June 2, 2014 as per Andhra Pradesh Reorganisation Act, 2014. As per the State Reorganization Act, all the outstanding liabilities on account of Public Debt and Public Account of the existing State of Andhra Pradesh needed to be "apportioned on the basis of population ratio" of the successor State Telangana. Given the development agenda of the new state, it is a formidable challenge to adhering to fiscal rules by containing the debt-GSDP ratio at 20 per cent, while maintaining the stipulated economic growth path of the State at 14-15 per cent, and even at the projected 20 per cent in the long run. Laudable the State's efforts to maintain the high growth trajectory, however the macro-fiscal parameters of the State - especially deficit and debt- are not within the stipulated fiscal threshold ratio. Against this backdrop, Telangana has adopted a new debt strategy to go for elongation of maturity structure of outstanding debt, to over 40 years, to mitigate the roll-over risks and debt servicing costs. This resilient debt strategy of shift towards long term to maturity structure of public debt is particularly relevant when Telangana has ambitious projects like "Rythu Bandhu" scheme (income support to farmers) and the capital infrastructure projects for public irrigation and the comprehensive drinking water programme to all households termed "Mission Bhagiratha". The tax buoyancy is above unity, though there are revenue uncertainties from GST and the intergovernmental fiscal transfers from Finance Commission. This can affect the State's macro-fiscal projections. The fiscal marksmanship analysis shows that there are errors in fiscal forecasting, which calls for internal corrections within the Department of Finance in their forecasting models of revenue and expenditure.

Pages: 22
Date: 2019-12
Note: Working Paper 288, 2019
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