Telangana’s Fiscal Health

The NITI Aayog has brought into light financial issues facing the Telangana Government. The state is allocating a large portion of its resources to debt and interest payments. This reliance on debt has raised concerns, even as the state shows strong revenue growth. The recent report titled ‘Fiscal Health Index (FHI) 2025’ assesses the fiscal health of 18 major states, including Telangana, and was presented by Arvind Panagariya, Chairman of the XVI Finance Commission.

Debt and Interest Payments

• Telangana’s debt and interest payments have surged by 73% from ₹12,586 crore in 2018-19 to ₹21,821 crore in 2022-23.
• This increase consumes a large share of the state’s revenue expenditure.
• The rising debt levels indicate a growing financial burden on the state’s budget.

Fiscal Deficit and Compliance

The state set a fiscal deficit target of 5% of its Gross State Domestic Product (GSDP). However, it achieved a lower deficit of 2.48% in 2022-23. This outcome reflects the state’s compliance with the Fiscal Responsibility and Budget Management (FRBM) Act, which aims to ensure fiscal prudence.

Public Debt Trends

Over the past five years, the growth rate of Telangana’s outstanding public debt has fluctuated between 11.9% and 19.1%. After a consistent increase until 2020-21, the ratio of outstanding debt to GSDP has begun to decline, reaching 27.2% in 2022-23, down from 28.6% the previous year.

Health and Education Spending

Despite the positive trends in fiscal management, health spending as a percentage of total expenditure has decreased from 4.67% in 2018-19 to 4.57% in 2022-23. The state has allocated a lower percentage of its budget to health and education compared to other major states, raising concerns about the adequacy of public services.

Capital Expenditure Decline

Capital expenditure (Capex) has seen a notable decline, both in absolute terms and as a percentage of GSDP. The share of Capex in total expenditure fell from 17.6% in 2018-19 to 9.3% in 2022-23. This decline signals a reduced investment in infrastructure and social services, which is critical for long-term development.

Recommendations for Improvement

The NITI Aayog report recommends that Telangana increase its capital expenditure, particularly in the health and education sectors. A focus on these areas is essential for improving public welfare and ensuring sustainable economic growth.

Questions for UPSC:

1. Examine the impact of rising public debt on state finances and economic growth.
2. Critically discuss the importance of fiscal responsibility in managing state budgets.
3. Analyse the relationship between capital expenditure and social development in state of Indias.
4. Estimate the effects of declining health spending on public health outcomes in Telangana.

Answer Hints:

1. Examine the impact of rising public debt on state finances and economic growth.

1. Rising public debt leads to increased interest payments, consuming a larger share of the budget.
2. High debt levels can limit the state’s ability to invest in essential services and infrastructure.
3. Elevated debt may lead to higher borrowing costs and reduced investor confidence.
4. It can constrain economic growth by diverting funds from development projects to debt servicing.
5. Increased debt can also impact the state’s credit rating, affecting future borrowing capabilities.

2. Critically discuss the importance of fiscal responsibility in managing state budgets.

1. Fiscal responsibility ensures sustainable budgeting, preventing excessive deficits and debt accumulation.
2. It promotes transparency and accountability in government financial management.
3. Responsible fiscal policies can enhance investor confidence and economic stability.
4. Adhering to fiscal targets encourages long-term economic growth and social welfare investments.
5. It helps maintain compliance with regulatory frameworks like the Fiscal Responsibility and Budget Management Act.

3. Analyse the relationship between capital expenditure and social development in the state of India.

1. Capital expenditure directly funds infrastructure projects, which are essential for economic development.
2. Investment in social sectors like health and education improves public welfare and quality of life.
3. Higher capital expenditure can stimulate job creation and enhance economic productivity.
4. Reduced capital spending may hinder progress in achieving social development goals.
5. Effective capital allocation can lead to better public services, attracting investment and encouraging growth.

4. Estimate the effects of declining health spending on public health outcomes in Telangana.

1. Declining health spending can lead to inadequate healthcare services and resources.
2. It may result in poorer health outcomes, including higher morbidity and mortality rates.
3. Reduced investment in health can exacerbate existing health disparities among populations.
4. Lower health funding limits the state’s ability to respond to public health emergencies.
5. Inadequate health expenditure can negatively impact overall economic productivity and workforce health.