Why KCR has started sounding desperate
All states face the problem of reordering their finances. But Telangana more than others because it has committed itself to a path from which it cannot swerve
Welfare initiatives by the K Chandrasekhar Rao (Kcr)-led Telangana Rashtra Samiti (TRS) ensured his government’s return to power in 2018. It was a bumper harvest. The party got almost 47 per cent of the vote, an increase of a whopping 12.6 per cent in vote share over its performance in 2014. The number of its seats went up by 25. Opponents, especially the Congress, gnashed their teeth and tore out their hair, but to no avail — the Congress’s vote share went up but the number of seats, the party won fell (21 to 19). The BJP could win only one seat — even the state president lost the election. In Hyderabad’s old city, considered the bastion of the Majlis-e-ittehadul Muslimeen (MIM), the party suffered a shock: the MIM managed to retain its seven seats but its vote share went down relative to 2014.
The short point here is that welfarism won the day for KCR. But now, as the bills start coming in and the revenues start falling, alarm bells have begun to ring.
All the chief ministers flagged the issue of more funds when they held an extensive videoconferencing with the Prime Minister on April 2. But KCR’S tone sounded shrill and desperate. He argued that not only should the Centre pay what Telangana was owed, but more, as the state had lost a lot after the Finance Commission cut the share of states in the divisible pool of central taxes from 42 to 41 per cent. Moreover, as Telangana was managing its finances prudently, the centre should also pay what it owed in central taxes, State Disaster Relief Fund, local body fund grants and others... and Goods and Services Tax (GST) compensation.
Otherwise, KCR warned, the state would be staring at a shortfall to fund its welfare policies.
The fact is that between 2010 and 2015, the total releases to Telangana from the Centre amounted to ~46,740 crore. During the next five years (2015-20), which includes the rest of this fiscal, this will be ~1.06 trillion. This represents an increase of 128 per cent.
What about the GST compensation? The GST compensation was supposed to be released to states every two months from the GST cess. Since there was a shortfall in GST cess, the compensation was released only till October. Finance Minister Nirmala Sitharaman explained this (not just in English in the Lok Sabha but also in Telugu at a press conference in Hyderabad after the Union Budget) adding that the centre was not discriminating against Telangana — other states had the same complaint.
On March 8, Telangana Finance Minister Harish Rao presented the state Budget for 2020-21. Capital expenditure in 2020-21 was ~44,245 crore, a 41.2 per cent increase over the Revised Estimates of 2019-20. Capital outlay for 2020-21 was ~22,061 crore, 67.6 per cent higher than the Revised Estimate of 2019-20. And why? Because of an increase of ~10,161 crore (2,067 per cent) in the outlay towards water supply, sanitation, housing, and urban development: in other words, more welfare measures that would have to be paid for.
Possibly no state in India has the welfare obligations of the Telangana government. During the Covid-19 crisis, for instance, not only were Below Poverty Line (BPL) families given 12 kg rice and ~1,500 cash relief, but migrant labours too were provided 12 kg of rice and ~500 cash. This was in addition to the support to farmers with small holdings (~10,000 per acre per year) and many other promises made to people during the election campaign.
Because of Covid-19, the registration of sale of land is down to zero. Cinema halls are closed so there is no revenue from entertainment tax. Ditto for excise from liquor sales. The Budget says in 2020-21 the state will generate ~16,000 crore from state excise duty (an increase of 27 per cent from the Revised Estimates of 2019-20), and ~10,000 crore from stamp duty and registration fees (an increase of 55 per cent from the Revised Estimate of 2019-20). Post Covid-19, no one knows when... or even if.
All states have this problem of having to reorder their finances. But Telangana more than others because it has committed itself to a path from which it cannot swerve — for doing so would cost it, politically. KCR and team will need financial magic to get out of this jam.