Telangana, like any other State in the country, was hit hard by the Covid pandemic. But, the government says, it is on a V-shaped recovery, led by a sharp growth in the primary sector and State’s revenues coming back to the pre-pandemic level sooner than expected.

The Socio-Economic Outlook for 2021 outlines how the State waded through the crisis-ridden 2020-21 and comes back on a growth trajectory in a few months.

“In 2020-21, economic output, measured by Gross State Domestic Product (GSDP) was ₹9.78 lakh crore. It only fell by 1.26 per cent in 2011-12 prices. In comparison, the real economic output at the national level fell by 8 per cent,” the report said.

The resilience was led by the agriculture and allied sectors, which grew by 20.9 per cent as against the national average growth of 3 per cent.

But what is worrying is the mounting fiscal deficit. The Budget Estimates for 2021-22 has pegged the fiscal deficit at ₹45,509 crore.

Interestingly, the revised estimates put the fiscal deficit for 2020-21 at ₹42,399 crore, about ₹11,000 crore more than the estimated fiscal deficit of ₹33,191 crore for the year.

Additional borrowings

A steep fall in revenues in the first quarter of 2020-21 pushed the government to go for heavy borrowings to fund welfare schemes such as Rythu Bandhu and old age pensions. It also spent about ₹5,000 crore on revving up healthcare infrastructure to tackle the pandemic.

It raised an additional borrowings of about ₹18,000 crore, using the leeway given by the Centre in terms of FRBM (Fiscal Responsibility and Budget Management) limits.

The government contends that the State has the wherewithal to service the debts and keep the finances well under control. It points that the State recorded the highest annual tax growth rate of 16.6 per cent during the period 2014-19.

“Between 2016-17 and 2018-19, the State’s tax to GSDP ratio was the highest in India GS (general States) at 7.5 per cent against an average of 6.3 per cent for India GS,” the report said.

The State’s average debt to GSDP ratio is 21.1 per cent as against 27.3 per cent of India GS.

Drop in tax share

The report said the share of Telangana in the divisible pool of taxes has come down from 2.43 per cent in 2015-20 to 2.13 per cent in 2020-21. It has now further come down to 2.10 per cent during 2021-26, which will result in a loss of Rs 14,151 crore to the State.

V-shape growth in revenues

The pandemic has resulted in a sharp reduction in tax revenues for the State. The SOTR (State’s Own Tax Revenue) collections in April 2020 fell by 87.7 per cent (as compared to tax revenues in April 2019).

Similarly, it fell by 50.8 per cent in May 2020. However, after hitting a low in April and May, the tax revenues witnessed a steady recovery. “By June 2020, SOTR collections have recovered and reached the levels registered in June 2019. The State collected ₹36,806 crore in SOTR between April and December 2020, which was 9.4 per cent lower when compared to the SOTR collected in the same period the previous year,” the report said.

The same trend continued with all major tax streams such as State Goods and Services Tax (SGST), Stamps and Registration fees, Motor Vehicle Tax and Excise.

Donti Narasimha Reddy, an analyst, said that mounting debt burden is a cause for concern. “Heavy borrowings were made to invest in lift irrigation projects. It will prove to be very tough for the State to mobilise funds for operations and management of these projects,” he felt.

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