10 years of Telangana: Is India's newest state limping or marching ahead?

Telangana, a state carved out of the northwestern part of Andhra Pradesh on June 2, 2014, presents an intriguing economic paradox. Despite its macroeconomic parameters showing steady improvement over the past decade, the state’s debt as a proportion of the size of its economy has been on an upward trajectory, though not reaching alarming levels yet.

This is a puzzle since Telangana has maintained a revenue surplus for most of the past decade under the previous Bharat Rashtra Samithi (formerly Telangana Rashtra Samithi) government, except for the years 2019-20 to 2021-22. The robust revenue position can be attributed to the state’s own tax revenues (OTR), which have constituted between 52 per cent and 71 per cent of its revenue receipts over the past decade, never dipping below 60 per cent in the past 7-8 years.
 

Being revenue surplus, which indicates that the state exceeds its current receipts for its current expenditure, Telangana has been generous with its social welfare schemes. The state was the first to come out with a farmers’ investment scheme — the Rythu Bandhu Scheme — that has since been emulated by many other governments with a few modifications. Over the past 10 years, it has introduced numerous schemes targeting women, Scheduled Castes, Scheduled Tribes, and other vulnerable sections of society.

 

The change of government last year did not halt the welfare initiatives. Instead, the Congress government is now implementing six guarantees, including Rythu Bharosa, which has replaced the Rythu Bandhu Scheme.
 

The state’s fiscal deficit, however, has consistently exceeded the permissible limit for most years, even though it has been decreasing as a percentage of gross state domestic product (GSDP) in recent years. This is largely due to capital expenditure, which forces the state to spend more than its receipts.
 

In recent years, the state government has been compressing its capital expenditure. For instance, capital outlay, part of capital expenditure that generates assets, has not reached the level of 2017-18 as a proportion of GSDP. In absolute terms, the capital outlay of Rs 23,902 crore incurred during 2017-18 was higher than that in the next three years. Of this, a lower capital outlay at Rs 15,922 crore during 2020-21 was understandable due to the Covid-induced restrictions. Again, the Rs 17,880 crore capital outlay during 2022-23 was less than that during 2017-18.
 

It is not only capital outlay that has compressed over the years, there are also doubts about revenue expenditure figures shown in the Budgets over the past 10 years, at least if one goes by the allegations of the critics of the K Chandrashekar Rao government which had ruled the state for those years. Critics included the Congress government that replaced the Rao government late last year.  
 

State Deputy Chief Minister and Finance Minister Bhatti Vikramarka Mallu, in his interim Budget speech for 2024-25, alleged that the previous state government “inflated the receipts and created an illusion that they are providing huge funds for different schemes”.  He cited the example of the 2021-22 Budget, which allocated Rs 17,700 crore for the Dalit Bandhu scheme but allegedly the government did not release a single rupee for it.
 

Further, Mallu quoted the Comptroller and Auditor General (CAG) accounts for 2021-22 which showed that Rs 4,874 crore allotted towards scheduled castes’ welfare, Rs 2,918 crore allocated for scheduled tribes’ development, and Rs 1,437 crore earmarked for backward classes development was not spent.

 

“Similarly, from 2014-15 to 2023-24, only Rs 297 crore of total allocation of Rs 1,067 crore was spent for interest-free loans,” Mallu said.  
 

The Congress government also came out with a White Paper on the state’s finances. It said after 10 years of the KCR government, a situation has emerged that the debt burden, including the off-budget borrowings of the state, has become enormous.  
 

However, BRS Working President K T Rama Rao countered the White Paper with a ‘Swedha Pathram’, which claimed that the Rao government had ensured a value creation of more than Rs 50 trillion during the past 10 years in Telangana.
 

Despite these controversies, Telangana's macroeconomic parameters have shown improvement. The state’s per capita income, which was 43 per cent higher than the national average in its first year, had increased to 89.5 per cent by its 10th year.
Similarly, the size of the state economy rose from 4 per cent of the national economy to 4.9 per cent during this period, and is projected to increase to 5 per cent during the current financial year. Telangana’s economic size had been less than that of divided Andhra Pradesh during 2014-15 to 2022-23, barring 2019-20. However, state projections put Telangana’s economy at almost similar size to that of Andhra Pradesh at around Rs 14.5 trillion for 2023-24. This story may change during the current financial year as the Telangana Budget has assumed its economy to be at Rs 16.3 trillion, compared to Andhra’s Rs 15.9 trillion.

Besides, the multi-dimensional poverty rate had been much less than the national average during both 2015-16 and 2019-21. The state also saw a decline of this rate much faster than the national average from 2015-16 to 2019-21.
 

However, challenges remain. Telangana's retail inflation has been higher than the national average in recent years, its unemployment rate has consistently been higher than the all-India level, and literacy rates among both males and females 

(15 to 49 years) have been lower than the national average during 2015-16 and 2019-21. As Telangana enters its second decade, it will need to address these issues to ensure sustainable and inclusive growth.