HYDERABAD: The Comptroller and Auditor General of India (CAG) has said that the previous BRS government concealed details of Off-Budget Borrowings (OBB).
“If these off-Budget borrowings were included then the state crossed the stipulated Fiscal Responsibility and Budget Management Act (FRBM) limits,” a CAG report on state finances for the year ending March 31, 2023 said.
It said that the government may pronounce a specific reform path for removal of such indirect borrowings within a timeframe, as recommended by 15th Finance Commission.
The CAG report said that considering the OBB of Rs 1,18,629 crore and other liabilities, which are being serviced out of the state Budget, the ratio of debt to GSDP would be 35.64%, which is 10.64% above the set target of 25% as per the TSFRBM Act. This is also 5.94% above the limit (29.70%) prescribed by the 15th Finance Commission.
The total OBB of Telangana can be assessed as Rs 1,18,629 crore at the end of March 2023. Taking into account OBB of Rs 1,18,629 crore at the end of March 2023, the total outstanding liabilities of the state would work out to Rs 4,68,166 crore (Rs 3,49,537 crore+ Rs 1,18,629 crore). The ratio of total outstanding liabilities to GSDP would be 35.64% (Rs 4,68,166 crore on GSDP of Rs 13,13,391 crore) which is far above the target prescribed by 15th Finance Commission (29.70%) including OBB.
This indicates that some of the major funding sources of the government’s crucial socioeconomic schemes/ projects are beyond the oversight and control of the State Legislature. “Audit recommends that the state government may fully disclose all the details of OBBs in the Budget documents as recommended by the 15th Finance Commission,” the report said.
The CAG observed that the greater reliance on market borrowings by the government in recent years led to increased committed liabilities on interest payments. Consequently, interest payments have grown by nearly 73% during the past five-year period 2018-23 from Rs 12,586 crore to Rs 21,821 crore. The interest payments as a percentage of Revenue Expenditure have been continuously increasing.
Apart from this, the government facilitated interest payment of Rs 8,696 crore for the loans taken by seven institutions. These interest payments are relatable to OBB, the CAG said.
BRS govt did not give details of borrowings: CAG
The report said that the government of Telangana had, in principle, intimated the state Legislature from 2016-17 to 2019-20 during presentation of Budget that it would implement six schemes and four projects through Extra-Budgetary Resources (EBR) / OBB. However, the state government had neither detailed the quantum of such borrowings nor disclosed the names of the entities through which EBR/OBB was raised and other details in the Budget documents of the respective years. When entity-wise / institution-wise details of OBB were sought for by audit specifically, the government intimated (September 2023) audit to obtain the same from the companies/ corporations concerned. Non-disclosing complete details of OBB in the Budget documents was in contravention of the 15th Finance Commission recommendations, it said.
Incomplete projects
The CAG in its report said that there were 20 incomplete irrigation projects (commenced between 1983 to 2018) to be completed by 2023. The original cost of these projects has increased from Rs 1,02,388 crore to Rs 2,06,977 crore i.e., an escalation by Rs 1,04,589 crore (102%). An expenditure of Rs 1,73,564 crore was incurred on these projects as of March 2023.
In addition to this, the government has a pending liability of Rs 8,971 crore in respect of 13 incomplete irrigation projects.
“Irrigation projects are taken up on the assumption that the benefits will outweigh the costs. Non-completion of projects deprives the state of the intended benefits of economic growth. Further, the state government did not disclose financial results of any of the irrigation projects. As a result, there was no assurance on returns from the investments in irrigation and flood control. In respect of other departments, 260 projects/works with an estimated cost of Rs 6,016 crore remained incomplete, and an expenditure of Rs 4,790 crore was incurred as of March 2023 on these delayed projects,” the CAG said.
In addition to this, the government has a pending liability of Rs 1,096 crore in respect of 113 other ongoing projects/works. Inordinate delays in the completion of these projects/works not only keep the financial burden of the government increasing year after year, but also deprive the public of the intended benefits, the report said.
Debt profile
The state government will have to repay Rs 2,67,018 crore as principal and interest on the market borrowings in the next 10 years (by 2032-33). Apart from this, the state government will also have a liability to repay Rs 19,210 crore as principal in the next 10 years in respect of borrowings taken from the following financial institutions.
The overall review of debt sustainability, in terms of generally acceptable indicators, suggests that the net public debt available to the state government would be negative after considering outgo on servicing of Off-Budget Borrowings. This may put significant pressure on the state finances and may push the debt sustainability of the state to an undesirable level.
The substantial portion of market borrowings taken by the government were utilised for providing loans and advances to PSUs/SPVs/ABs for servicing (principal and interest) of OBBs. This is not healthy practice from the perspective of debt sustainability, the CAG noted.
Borrowed to repay debts
The utilisation of borrowed funds should ideally be used to fund capital creation and developmental activities. Using borrowed funds for meeting current consumption and repayment of interest on outstanding loans is not sustainable, the CAG said.
Revenue deficit
The CAG said that the state could not achieve revenue surplus for three consecutive years from 2019-20to 2021-22. It registered a revenue surplus of Rs 5,944 crore during the current year 2022-23. Revenue surplus is only Rs 1,680 crore.
