A financial quandary

The Reserve Bank of India headquarters in Mumbai.

The Reserve Bank of India headquarters in Mumbai. | Photo Credit: REUTERS

The delays by the Central government in permitting the Telangana government to raise funds through open market borrowings (OMBs) through the Reserve Bank of India (RBI) is turning out to be yet another contentious issue between the Centre and the State.

Telangana has been anxiously waiting for the Centre’s nod to raise funds through OMBs, which has not been forthcoming since the commencement of FY 2022-23. The State has several programmes lined up, including the Dalit Bandhu scheme, under which the government provides a one-time grant of ₹10 lakh each to eligible Dalit families to start a business venture of their choice. Payments are being made to 400 beneficiaries a day on average, which amounts to ₹40 crore a day, according to the State government. While the government is meeting its requirements through internal resources, it is likely to feel the pressure when payments under Rythu Bandhu start next month. Under this scheme, the government provides ₹5,000 an acre to over 60 lakh farmers enrolled under the scheme, twice a year. The outgo for the first installment is likely to be of the order of ₹7,400 crore, which the government will face difficulties in mobilising if permission is not granted before the onset of the kharif season. The State had accordingly proposed to raise ₹15,000 crore through OMBs in the auctions conducted by the RBI in six installments. But it is yet to avail of a single tranche of OMBs as the Centre has not given its nod in line with the provisions under Article 293 of the Constitution.

The Centre’s approval, a routine affair, became a complicated issue when the Union Finance Ministry raised questions about the State’s finances and off-budget borrowings. Union Finance Secretary T.V. Somanathan raised questions about the borrowings in the name of different corporations over and above the limits prescribed in the Fiscal Responsibility and Budget Management (FRBM) Act with a rider that the Centre would treat these borrowings as part of FRBM norms. The Comptroller and Auditor General (CAG) of India too expressed concern over the off-budget borrowings. In its report presented to the legislature in March, the CAG said the government was not fully disclosing its off-budget borrowings/liabilities and was circumventing the FRBM norms. Outstanding debt at the end of the year increased by 19% over the preceding year.

The State contended that the borrowed amounts were raised in the name of the Kaleshwaram Irrigation Project Corporation, the Telangana Drinking Water Supply Corporation and the State Water Resources Infrastructure Development Corporation. The expenditure, it said, should be treated as capital expenditure. It questioned the Centre’s intentions in raising questions about the State’s finances in a “retrospective manner,” asserting that it exposed the “discriminatory attitude” of the Centre towards Telangana, whose finances were returning to normalcy after being adversely affected by the pandemic.

Special Chief Secretary, Finance, K. Ramakrishna Rao was upset about the Union Finance Secretary’s claims that the off-budget borrowings too would be taken into account while assessing the State’s fiscal health in line with the recommendations of the 15th Finance Commission. The State wondered how the Union official was speaking about the finance panel’s recommendations when the latter had not given any such suggestion. Mr. Rao pointed out that it was the Centre which gave permission to the States to borrow ₹1.27 lakh crore outside the FRBM norms. The issue will hopefully be sorted out soon as the Centre has assured Telangana that the concerns flagged will be thoroughly examined.

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Printable version | May 17, 2022 12:18:57 am |