Finance Commission Report Highlights Telangana's Fiscal Challenges
The 16th Finance Commission, in its comprehensive report for the 2026-2031 period presented by Union Finance Minister Nirmala Sitharaman, has identified Telangana as one of India's highest subsidy-spending states. This revelation underscores significant fiscal pressures even as the state demonstrates strong income indicators.
Subsidy Expenditure and Power Sector Stress
According to the detailed analysis, Telangana's per capita subsidy expenditure reached an impressive ₹16,460 in the fiscal year 2023-24. This substantial figure places the state firmly among the top three nationwide in terms of subsidy spending. The report further notes that Telangana accounted for a notable 9% of the total accumulated losses incurred by state-run electricity distribution companies during the same period. This significant share reflects the state's considerable contribution to the overall stress within the country's power sector, highlighting a critical area of economic concern.
Unconditional Transfers and Agricultural Schemes
The commission's findings indicate that unconditional transfers constituted a major component of Telangana's spending patterns. In the fiscal year 2018-19, over 10% of the state's revenue expenditure was dedicated to such transfers. A prominent example cited in the report is Telangana's flagship Rythu Bandhu scheme, which has emerged as one of the largest cash transfer programmes in the agricultural sector during 2023-24. This initiative has contributed substantially to the state's overall subsidy outgo, demonstrating the government's commitment to supporting farmers while simultaneously increasing fiscal burdens.
Per Capita Income and Rising Debt Levels
On a positive note, the report highlights that Telangana achieved the highest per capita income among India's large states, showcasing its economic strength and development progress. However, this economic prosperity has been accompanied by a steady and concerning rise in public debt. The state inherited a debt-to-GSDP ratio of 18.7% in 2014-15, which escalated to 25% by 2019-20. The ratio peaked at 29.9% during the challenging Covid-19 period in 2020-21 and subsequently moderated to 27.3% in 2023-24. Despite this slight improvement, the 2023-24 figure remains nearly eight percentage points higher than the ratio recorded in 2011-12, indicating a long-term trend of increasing indebtedness.
Fiscal Deficit and Revenue Surplus Dynamics
The commission observed that Telangana's fiscal deficit consistently crossed the 3% threshold in most years since 2015-16, with only one exception. While the pandemic era marked a peak in debt levels followed by some moderation, the state's fiscal health remains under pressure. Interestingly, the report also noted that Telangana generally maintained a revenue surplus in most years, even as its fiscal deficit stayed elevated. This paradoxical situation suggests complex fiscal management strategies at play within the state's financial framework.
Fiscal Autonomy and Central Devolution
In terms of fiscal autonomy, Telangana and Haryana stood out prominently in 2023-24, with approximately 80% of their total receipts generated from their own revenues. This impressive statistic indicates lower reliance on central devolution and grants, showcasing a degree of financial independence. However, the commission pointed out a concerning trend: per capita devolution to Telangana declined under the 15th Finance Commission compared to the 14th Finance Commission. This reduction adds to the state's long-term fiscal challenges, particularly in critical sectors like power distribution, where financial pressures are already evident.
The comprehensive report paints a nuanced picture of Telangana's economic landscape, balancing notable achievements in per capita income with significant challenges in subsidy management and debt accumulation. As the state navigates these fiscal pressures, the findings of the 16th Finance Commission will likely influence future policy decisions and economic strategies in Hyderabad and beyond.
