WRIT IN RED INK
The latest audit report of Telangana’s finances has raised serious concerns about the flouting of budgetary and financial norms. It also reveals inadequacies in control over and execution of the budget. Claiming that the state government was yet to comply with the Government of India’s accounting standards, the report of the Comptroller and Auditor General (CAG) states that bringing in various important items of expenditure and revenue receipts indiscriminately under the omnibus ‘Minor head 800: other receipts and other expenditure’ affected transparency in financial reporting and made it difficult to properly analyse allocation priorities and quality of expenditure.
There has also been a consistent trend over the years of incurring expenditure without budgetary provisions. Such excess expenditure since 2014-15, when the TRS first came to power, needs to be regularised. Nothing exemplifies this more than the accounts of the Hyderabad Metropolitan Water Supply and Sewerage Board, which serves about a third of the state’s population. The board’s accounts have neither been audited nor analysed as it is in arrears since 2010-11.
As irrigation projects are approved on the basis of data supporting an implicit assumption that the benefits would outweigh the costs, the state is deprived of the intended benefits of economic growth when the projects are left incomplete. Moreover, as the state does not disclose the financial results of any irrigation project, there was no assurance on returns from the public investment in irrigation and flood control.
In its report for 202021, the Fifteenth Finance Commission (FFC) had noted the tendency of governments to borrow outside the Consolidated Fund of India even though all revenues received and expenses incurred by a government, barring exceptional items, are supposed to be part of it. This tendency leads to the accumulation of extra-budgetary liabilities. The FFC suggested that governments should comply with the recommended path of debt consolidation, while abiding by the definition of debt and fiscal deficit in the Fiscal Responsibility and Budget Management Act, which recognises issues related to off-budget borrowings (OBBs). According to the FFC, there is first of all a need for full disclosure of OBBs. During the presentation of the past few budgets, the Telangana government informed the assembly that it would use OBBs to fund flagship socio-economic schemes such as Mission Bhagiratha (piped water to every home), the Kaleshwaram Lift Irrigation Scheme (KLIS) and the two-bedroom housing scheme.
The TRS government has a consistent pattern of incurring expenditure without budgetary provisions
However, it has never offered any clarity on the exact quantum of such borrowings in the budget nor provided specific disclosure relating to the entities through which it planned to channelise extra-budgetary resources. Thus, the full disclosure recommended by the FFC has not been made. While such OBBs stood at Rs 1,11,898.7 crore as of March 2021, the outstanding guarantees extended by the state government to the institutions concerned stood at Rs 96,448 crore.
Such accounting practices also impact transparency in reporting financial transactions. Many of the institutions do not have revenue resources to repay the loans provided by the government. For example, the detailed project report of KLIS stated that the project would hardly generate any revenue as water was being provided at nominal rates for irrigation in drought-prone regions. Similarly, the Telangana State Sheep and Goat Development Cooperative Federation Limited did not have any definite stream of revenue of its own and was, in fact, only a matter of implementing a government subsidy scheme. The liability of loans taken by institutions that are unable to generate enough resources to service the debts will eventually have to be shouldered by the government.
“Heavy borrowing to sustain the hyper-populist welfare measures is costing the economy dearly and, in the long run, may lead to disaster,” says M. Padmanabha Reddy, secretary of the Forum for Good Governance. Instead of borrowing to fund such programmes, he suggests the state increase budget allocations for education, health and infrastructure.