Telangana government’s bid to auction bonds runs into RBI hurdle

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Hyderabad: Mission Bhagiratha and the Kaleshwaram project account for a major chunk of bank guarantees given by the state government for raising loans. These projects are not in a position to repay the debt as the government is not imposing user charges. These bank guarantees have now become an obstacle for the government to auction bonds through the RBI.

The Centre wants to treat bank guarantees as part of state government debt, which the TS government is strongly opposed to. This has led to a situation whereupon the Centre is halting the state government’s bid to auction bonds in 2022-23.

 

The state government created Kaleshwaram Irrigation Project Corporation Ltd to raise funds for the construction of Kaleshwaram Lift Irrigation Project (KLIP), Telangana Drinking Water Supply Corporation Ltd to raise funds for Mission Bhagiratha and Telangana State Water Resources Infrastructure Development Corporation Ltd to fund other irrigation projects.

Official sources said that the government has spent Rs 70,000 crore on Kaleshwaram and Rs 40,000 crore on Mission Bhagiratha. Over 90 per cent of these funds were mobilised through bank guarantees. The government’s contention was that both these projects would be able to repay the debt on their own once they become fully operational.

 

Water from both projects is supplied free. It may be recalled that governments in the undivided Andhra Pradesh were imposing water cess on farmers which was scrapped by the TRS government in 2014.

Mission Bhagiratha water is generating some revenue only in municipal corporations, municipalities and from industries. Consequently, the government is forced to repay the debts on behalf of the corporations.

These loans come under off-budget borrowings by the government, which stood at Rs 1,05,006 crore by the end of 2021-22 fiscal. The government proposed to go in for another Rs 40,000 crore off-budget borrowings in the current fiscal taking the total to Rs 1,45,455 crore by the end of 2022-23.

 

The Centre now wants to treat the overall off-budget borrowings as part of state government debt and allow auction of bonds in the open market to raise fresh loans in 2022-23 only for the remaining portion of its eligibility as under the FRBM Act, which makes it clear that state’s debt burden should not exceed 25 per cent of its GSDP.

The state government’s total debt burden, including budget and off-budget borrowings by the end of 2022-23, will increase to Rs 4,75,44 crore, of which Rs 3,44,792 crore are budget borrowings and Rs 1,45,456 crore are off-budget borrowings.

 

The government has proposed to raise Rs 59,672 crore through auction of bonds this fiscal, which has been halted by the RBI. If the Centre treats off-budget borrowings as state government’s debt, Telangana will not be eligible to raise the money as it exceeds the FRBM cap.

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