A Reddy-reckoner on Telangana's fiscal strain

Experts say the state's economy is grappling with hidden debt, rising welfare costs, and lack of transparency. M Sharanya weighs in

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Recent data from the Comptroller and Auditor General (CAG) of India has validated concerns expressed by Telangana Chief Minister Revanth Reddy that his state is facing a monthly revenue shortfall of ₹4,000 crore. This, Reddy had said, was pushing the state towards "bankruptcy".

According to CAG data, the state reported a revenue deficit—the gap between current expenditure and receipts—of around ₹4,023 crore in the first month of the current financial year. The state government has projected a revenue surplus of 0.2 per cent in the Budget Estimates (BE) for 2025-26. The state's fiscal deficit is pegged at 3 per cent, which would contribute to debt-gross state domestic product (GSDP) ratio of 28.10 per cent at the end of FY26.

While the projections are not very alarming and one may argue that a deficit in the first month could be due to initial cash management, the CM's statement and the CAG reports highlighted the seriousness of the situation.

Although Telangana projects its debt-to-GSDP ratio will worsen to 32.5 per cent at the end of the next financial year, experts say this figure fails to capture the full picture. That's because it excludes off-budget borrowings (OBBs)—debt that is not reflected in the government's official Budget and fiscal calculations.

More debt than shown

Over the years, the state borrowed more to fund "big-ticket items" such as the Kaleshwaram Lift Irrigation Scheme, besides those relating to housing, drinking water supply, roads, and metro rail. Much of the loans for these projects and schemes were raised not directly by the state government but by special purpose vehicles (SPVs) and corporations. These loans eventually come to the government but are not shown in the Budget math.