Telangana needs a multi-pronged approach to manage its growing financial obligations and ensure that future borrowings truly translate into equitable and sustainable economic development. The state’s path to sustainable growth amidst rising debt hinges on strategic fiscal recalibration.

State’s borrowings have largely been directed towards capital outlay for infrastructure projects such as roads, irrigation, and water grids which are essential for long-term development. A case in point is the Kaleshwaram Project, whose cost is now likely to exceed ₹1,47,427.41 crore significantly higher than the ₹81,911.01 crore originally projected to the Central Water Commission (CWC).

“Such infrastructure is productive for future growth, but its returns are long gestation, generally after three years,” Sourav Biswas, Assistant Professor at Woxsen University said.

At the same time, growing revenue expenditures are squeezing the state’s fiscal room. Fixed expenditures such as subsidies (₹12,958.70 crore), salaries (₹38,627.52 crore), and pensions (₹13,024.07 crore) have sharply constrained fiscal flexibility.

However, a substantial and consistent portion of the borrowed funds has also been extended as loans to state entities such as DISCOMs, TSRTC (Telangana State Road Transport Corporation), and other public sector units. In 2023–24 alone, ₹28,480 crore was loaned to such state-run agencies. Biswas raised concerns about this pattern, stating, “Loans to loss-making bodies yield poor returns and raise questions on sustainability.”

He further emphasised that many struggling PSUs require drastic restructuring rather than perpetual debt support.

Telangana’s total outstanding debt, which has steadily increased over the past five years, is projected to reach ₹5,04,814 crore by March 2026, according to the FY 2025–26 Budget Estimates. At an estimated 28.1 per cent in 2025–26, the Debt-to-GSDP ratio is nearing the 15th Finance Commission’s 29.7 per cent ceiling, crossing it could raise borrowing costs. Projections suggest the ratio may rise further to 32.5 per cent in 2026–27. Additionally, rising debt levels raise urgent concerns about the state’s ability to repay its borrowings, which is closely tied to its revenue generation.

“The recent decline in excise duty collections and overall revenue receipts further highlights a vulnerable revenue base, demanding urgent reforms to broaden the tax base, improve collection efficiency, and reduce leakages to enhance repayment capacity,” Atul Panday, Professor of Finance at Woxsen University, said.

Without timely fiscal corrections, the state risks slipping into a cycle of debt. Rising fixed costs, slowing revenue growth, and growing reliance on short-term borrowing instruments such as RBI for overdrafts have created a structurally vulnerable fiscal position.

The answer lies in accountability and reform, not in austerity, Professor Donkor Nawaah at Woxsen University said. At the same time, he argued for strengthening the state’s revenue base through better tax administration, rationalised subsidies, and curbing non-essential freebies. Asset monetisation can unlock hidden value without adding to debt.

Telangana is at a critical juncture. As both Biswas and Panday stress, addressing these challenges will require a disciplined and diversified strategy that focuses on fiscal efficiency, improved governance of state-run entities, and sustainable long-term planning, an approach that must be as multi-pronged as the challenges it seeks to solve.

The writer is an intern with businessline

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Published on June 17, 2025