15th finance panel pulls up Telangana government over off-budget borrowings

Hyderabad: The 15th Finance Commission has pulled up the Telangana government stating that its off-budget borrowings taken from various financial institutions have crossed Rs 1 lakh crore. "This could pose a major fiscal risk to the State," it said.

Off-budget borrowings are the loans that are taken not by the State governments directly, but by some public institutions which borrow on the directions of the State governments. Such borrowings are used to fulfil government's expenditure needs.

The Commission has also warned the government for not complying with the constitutional provisions of constituting the State Finance Commission (SFC) and timely implementation of the Commission recommendations.

The Finance Commission Report 2021-2026, which was tabled in the Lok Sabha by Union Finance Minister Nirmala Sitharaman during the presentation of the Union Budget 2021-2022, observed that "Telangana resorted to borrowings for critical social infrastructure like drinking water and irrigation.

The mounting interest payments for such huge off-budget borrowings (without a provision for cost recovery) will create fiscal challenges soon," the report said. The report said that the interest repayment at 13 per cent of TRE (Tax Return Evolution) in 2018-29 is higher than the class average and it is growing fast.

The Commission pointed out that the Kaleshwaram Lift Irrigation Project, which was taken up at the cost of more than Rs 80,000 crore, invariably notches up a massive electricity bill, bringing to question, the financial viability of the project in the absence of a guaranteed revenue stream.

It suggested to the government that it should try to generate adequate revenue (through user charges) to at least cover the operations and maintenance cost of the project.

The Commission said huge investments made in irrigation have not yet resulted in commensurate returns in terms of crop yield improvements. The downside risks on the State's fiscal situation remain a major challenge.

It further questioned the government for its failure in furnishing information on the functioning of the State Finance Commission.

The State government had informed that the SFC was constituted in 2015 but had not submitted its report despite lapse of more than four years. The Commission observed that grants to the local bodies are based on the recommendations of SFCs.

The State government must constitute SFC, act upon their recommendations and lay the explanatory memorandum pertaining to the action taken thereon before the State legislature on or before March 2024.