Hit by economic slowdown, Telangana downsizes budget by 20%

The economic slowdown has forced Telangana to cut its budget by nearly 20 per cent from what was projected in the vote-on-account budget in February.

The 2019-20 budget has been downsized from ₹1.82 lakh crore to ₹1.46 lakh crore since the revenues have fallen steeply across the board. Telangana, the youngest state of the country, had anticipated 15 per cent growth in tax revenue in 2019-20, but only 5.46 per cent was realised in the first quarter.

Blame game

While presenting a full-fledged annual budget in the Assembly, Chief Minister K Chandrashekar Rao has blamed the Centre for the gloomy economic scenario, saying that the Union government alone decides the broad fiscal policies in the country and that states have no option but to follow them.

He presented a bleak picture of not just the state’s economy but also that of the country while blaming the Centre for mismanagement. The severe economic slowdown was leading to serious repercussions and adversely impacted all sectors, he said. “There is negative growth in many key sectors,” the Chief Minister said.

The Chief Minister also invoked the federal narrative that formed a key component of his election campaign in the past and rooted for a greater say for the states in how the finances are raised, allocated and spent.

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In the last five years, Telangana has contributed ₹2.7 lakh crore in form of taxes to the Centre while it got only ₹31,802 crore as central devolution, he pointed out. Besides, he said that the Centre had cut the state’s share in central tax devolution by 4.19% and the allocations in several items have been reduced.

The Chief Minister also blamed the Centre for not fulfilling its commitments under the Andhra Pradesh Reorganisation Act. “It was supposed to give a grant of ₹450 crore to the state for development of its backward areas under the act, but the state got nothing,” he claimed.

Attributing the slashing of budget to the overall economic slowdown in the country, the Chief Minister said, “I regret that I am presenting the state budget when both the Centre and the state are going through a severe financial crisis. The severe economic slowdown is leading to serious repercussions in the country and has adversely impacted all sectors.”

BJP slams ‘misgovernance’ of TRS government

Responding to the accusations, the Bharatiya Janata Party (BJP) slammed the Telangana Rashtra Samithi (TRS) government in the state for “lack of fiscal prudence, discipline and vision.” BJP spokesperson Krishnasagar Rao dubbed the Chief Minister as an ‘escapist’ for blaming the central government.

“The CAG has clearly exposed this government’s massive mismanagement of central funds and its diversion to the Chief Minister’s pet projects,” he said. Stating that the misgovernance by the Chief Minister was responsible for the economic slowdown in the state, Rao said that the state’s finances were in a serious mess.

“The state budget is a narrative of white lies. It has not highlighted the factual situation of a debt-ridden state where majority of payments are going towards payment of high interests on debts than investments into capital expenditure for wealth creation,” the spokesperson said.

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Meanwhile, the Congress too slammed the TRS government for its “lack of vision”. Congress floor leader in the Assembly, Bhatti Vikramarka, said that the state government had inherited a revenue surplus state but its lack of vision and fiscal prudence had left it in the red with a huge debt.

However, a noted political analyst argued that the downsizing of the budget was a reflection of the overall situation in the economy and is not specific to Telangana alone.

“The downsizing of the budget is a reflection of the overall gloomy situation in the economy. This is not specific to Telangana. However, given the present adverse conditions, the government needs to strike a fine balance between welfare and development,” political analyst Dr K Nageshwar said.

Poor revenue collection

The state’s revenue collections were hit in almost all the sectors. In the past five years, Telangana recorded an average of 13.36% growth in commercial taxes whereas in the first four months of this financial year, it stood at 6.61%.

The worst-hit was the motor vehicle tax sector which recorded an average growth of 19% in the last five years, but has now declined to -2.06% in the first quarter of 2019-20. Non-tax revenue is down to -14.16% from an average growth rate of 14.9% in the last five years.

“The non-tax revenues recorded a steep decline by 29% purely due to the economic slowdown. Added to this, the Centre also made a cut in the devolution of funds to the state. For 2019-20 financial year, the Centre has cut 4.19% in the state’s share in central taxes. The Centre also reduced allocations in several other items causing severe loss to the state,” the Chief Minister said.

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No dilution of flagship schemes

Despite the gloom all around, Telangana is better placed in economic growth when compared to states like Punjab, Karnataka and Haryana, which had registered a negative growth rate, the Chief Minister said. “Because of the leverage the state has due to its economic growth and fiscal discipline, it could raise funds from other financial institutions,” he added.

Telangana’s GSDP grew at 15% for financial year 2018-19, up from 14.2% in 2017-18. Prior to bifurcation, the average annual growth of the State’s Gross Domestic Product (GSDP) was only 4.2% at constant prices but over the last five years it has increased two and half times. “The fact that the state’s GSDP stood at ₹8.65 lakh crore in 2018-19 amply demonstrates the economic robustness of the state after bifurcation,” the Chief Minister said.

He asserted that all the flagship programmes of his government, including the construction of mega irrigation projects like Kaleshwaram, Palamurur-Rangareddy, and Devadula, and Rythu Bandhu (investment assistance for farmers), free power for farmers and ‘Aasara’ (pensions for vulnerable sections), would receive undiluted attention.

“We are committed to continue welfare programmes for the poor and the farmers despite the existing financial crisis. We have doubled the amounts being given for pensions to various sections of people, increased the financial assistance under the Rythu Bandhu scheme from ₹8,000 per acre to ₹10,000 per acre per annum by making a budgetary allocation of ₹12,000 crore,” he said.

Similarly, schemes like Rythu Beema (waiver of crop loans for farmers), KCR Kits, Kalyana Lakshmi, Arogya Lakshmi, six kilograms rice for each family and others would continue, the Chief Minister asserted.