Telangana is crying foul over the new dictate that it cannot borrow from the market this year. The Centre’s cut came at a time when the state hoped to raise Rs 53,000 crore this financial year through this route. The new regulations would seriously harm the state’s financial planning with an election only a year and a half away.
The Telangana government has strongly opposed the Centre’s attempts to show that the state is overstepping its bounds, by bringing off-budget lending under the Fiscal Responsibility and Fiscal Management (FRBM) ceiling. The state suffered the first blow when the RBI recently refused permission to auction its securities to raise Rs 2,000 crore. Adding insult to injury, the Power Finance Corporation Ltd (PFC) and the Rural Electrification Corporation Ltd (REC) bluntly told the state that they had suspended the release of the remaining loan amounts, which were amount to Rs 23,729 crore unless the RBI gives its clearance.
Now, the age-old debate rages on again over whether it’s safe to bite off more than you can chew. The state’s cumulative public debt is expected to reach a whopping Rs 3.23 lakh crore by the end of this financial year, which includes market borrowings, loans from autonomous bodies and special securities. This represents 25% of the state’s GDP.
The Center’s decision may be a step in the right direction, but tightening the cap too tightly raises suspicions about whether it has a political agenda to grind. Although loans are essential for asset creation, more often than not, states tend to use the money to indulge in excessive spending and fund populist agendas, as is the case in Telangana. The state should also realize that servicing the debt by accumulating more debt is economic mismanagement and can lead to recession. While Telangana should learn to cut the coat according to the fabric, the Center should also allow some leeway for the state to prevent it from suffocating.
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