‘Rich State’ Telangana reels under double whammy

Twin blows of slowdown and lockdown reduce the government’s income in April to a meagre trickle

08/05/2020, M.L. MELLY MAITREYI,HYDERABAD

Telangana, often touted as a ‘rich state’ by its Chief Minister K.Chandrasekhar Rao, finds itself reeling under the twin blows of the economic slowdown that preceded the COVID-19 pandemic and the lockdown. While slower economic growth left its finances substantially dependent on GST compensation, the State’s own revenues have now hit rock bottom due to the latest public health crisis and the drastic measures taken to mitigate it.

Mr. Rao, who has extended the lockdown in the State till May 29 despite a trying financial situation that has resulted in the State receiving barely 5% of its own revenue in April, has given indications that his patience is wearing thin with the Centre not responding to his various suggestions to infuse funds into economy.

The lockdown was announced a few weeks after the State presented its Budget outlay of ₹1.82 lakh crore for 2020-21, with an increase of 28.7% over the revised estimate of 2019-20. At the time, the outlay was perceived as being ambitious given the country’s economic slowdown and the fact that the GSDP growth rate at current prices for 2019-20 was revised down to 12.1%, from 14% in 2018-19. But no one could have foreseen the havoc wrought on the State’s revenue and growth estimates by the pandemic. The budget had earlier estimated the State’s fiscal deficit for 2020-21 at ₹33,000 crore.

The State, which used to be proud of its robust revenue growth rate, became eligible for GST compensation in 2019-20 as its own revenue growth fell sharply to 7%, from the 16.1% expansion recorded in 2018-19. The recommendation of the 15th Finance Commission cut the State’s share in Central tax devolution to 2.1% from 2.4%. And delays and shortfalls in the release of the State’s share of IGST and GST compensation added to its woes.

The overall income for Telangana, including Central funds and loans, is about ₹15,000 crore a month with the State’s own tax revenue amounting to ₹10,800 crore to ₹11,000 crore. But Telangana’s income from all sources was only ₹1,600 crore in April, with the State’s own tax revenue slumping by 95% to ₹500 crore, Mr. Rao had said recently.

Making a case for liberal sanction of funds to the States at a time when they were reeling under the impact of slowdown, compounded by the COVID-19 crisis, and yet spending from their meagre resources on relief and welfare of the poor and migrant workers, Mr. Rao’s argument is that the broad fiscal policy rests with the Centre. “Either Centre should sanction more funds to the States or transfer power to the States to make their own decisions,” he said.

Mr. Rao has also repeatedly — once in a videoconference on the ongoing crisis with the Prime Minister and also in a written representation — urged the Centre to accord sanction for what he termed ‘Helicopter money’ (a direct infusion of money to the public by the RBI or the Central government) and increase the FRBM limit from 3% to 5%.

The FRBM limit increase would enable the State to raise more loans from the market — ₹50,000 crore as against ₹30,000 crore for the year 2020-21. Another appeal is for a moratorium on loan and interest repayments for six months to let the State get a breather from its financial stress.

Mr. Rao pointed out that even for running special trains to take migrant workers to their home States, the Railways were collecting the fare from the States. “ I feel sorry for the Centre’s indifference towards the States’ problems. We will wait for some more time and have our own plan of action,” a visibly disappointed Mr. Rao said during a recent conference with the media.

Revenue from sales tax and VAT on petroleum products, State excise duty on liquor and stamp duty and registration fee are the main revenue sources for the State (amounting to ₹52,400 crore) while SGST is expected to generate ₹27,600 crore. The SOTR was estimated at more than ₹85,000 crore for 2020-21.

But in April, there was zero revenue from excise and liquor (against ₹1,400 crore), stamps and registration (target of ₹880 crore) and motor vehicle tax (estimated ₹400 cr.) while the VAT on petroleum products was only about ₹50 crore as against normal revenue of ₹1,500 crore. The State GST was also only about ₹350 crore to ₹400 crore against ₹3,000 crore.

The State borrowed ₹4,000 crore from the market in April, as against the ₹2,500 crore it would normally borrow in a month.

Against the income of ₹1,600 crore, the government had to spend close to ₹10,000 crore in April including ₹1,800 crore towards salaries and pensions at 50% and 75% deferment, ₹2,400 crore towards debt servicing, ₹870 crore towards Aasara pensions, ₹830 crore towards power subsidies, ₹2,400 crore towards COVID-19 relief assistance of ₹1,500 to every white ration card holder and 12 kg of rice and releases to the health department. The State also stood guarantor for a loan of ₹25,000 crore availed by the Civil Supplies Corporation to procure paddy, fine rice for the current rabi season.

The cut in the State’s share in Central devolution saw the State receiving only ₹982 crore in April, as against ₹1,200 crore. “We pulled through with some savings apart from borrowings and what trickled in from Centre under Centrally Sponsored Schemes and about ₹200 crore of donations to the CMRF” officials said, speaking on the condition of anonymity.

Telangana’s government spends close to ₹40,000 crore on welfare schemes and its budgeted capital expenditure of ₹44,000 crore includes ₹22,000 crore of capital outlay for the creation of assets. Its debt servicing expenditure for the year was put at ₹21,131 crore.