TS plans outside-budget loans to escape debt cap

In an attempt to escape tough conditions of the Fiscal Responsibility and Budget Manage-ment (FRBM) Act, the Telangana State government has decided to borrow `30,000 crore outside the State Budget for its flagship programmes like Mission Bhagiratha, Double Bedroom Housing Project, and others.

The FRBM Act is a Central law which sets the limit on the borrowing of the central and state governments to impose fiscal discipline in the country. As per this law, the Telangana government can borrow around `23,000 crore in the current financial year, which means it can raise an average `2,000 crore loan from the market every month.

The Telangana government's monthly expenditure is more than `9,000 crore. However, its monthly revenue is `7,000 crore. This income includes includes its tax and non tax revenue, grants and tax devolutions from Central government, but excludes market borrowings.

According to finance department officials, the state government’s monthly expenditure includes `2,500 crore for salaries and pensions, `900 crore for payment of interest on borrowings, `700 crore for grant in aide salaries, `400 to `500 crore for Asara pensions, `400 crore towards tariff subsidy, `250 crore for rice subsidy, `800 crore for regular maintenance and `950 crore need for various scholarships.

The `2,000 crore borrowing allowed under the FRBM Act goes into funding the deficit in the government’s monthly expenditure, leaving little money for capital expenditure. However, any violation of borrowing cap — three per cent of Gross State Domestic Product — by the TS government would result in losing incentives offered by Finance Commission.

The only way out of this, official said, is to borrow money out of the state budget. The state governments typically workaround the regulations by raising money from corporations or public limited companies, which are owned by them. This would reflect the borrowing in the books of the companies or corporations and not the state budget, giving an escape route from the FRBM Act.