India Today

WRIT IN RED INK

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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.

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