Structural changes in economy, policy intensification must to achieve Telangana’s economic targets: CESS decadal study

The Telangana Government should bring in structural changes in the economy along with policy intensification in its pursuit of achieving US $1 trillion economy by 2034. With Telangana’s share of persons over 60 years in the country set to increase to 17.1% in the next 10 years, the State Government should factor in demographic factors too in the preparation of its fiscal policy besides focusing on production led employment for ensuring growth of the Grass State Domestic Product (GSDP) in the coming years.

CESS’s decadal report released

The release of the report titled “Public Finances of Telangana: Trends, challenges and policy priorities”, a decadal in-depth evaluation of the State’s economic trajectory, provided platform for experts to share their views on the State’s economy. The report prepared by the Centre for Economic and Social Studies (CESS) underscored the State’s strong fiscal self reliance with State’s Own Revenue accounting for 76% of cumulative revenue receipts and growth of State’s Own Tax Revenue at 11.6% a year over the decade.

Revenue buoyancy was however on steady decline in post pandemic period signalling that general economic expansion is no longer translating into proportional tax yield. Moreover, the core revenue streams are from consumption and non-recurring or exhaustible sources like SGST, State VAT and mining royalties limiting long term revenue flexibility. “Focus should be on widening revenue base and increase expenditure on education which is presently less,” CESS director E. Revathi told The Hindu.

A reason attributed to decline in revenue buoyancy

One of the reasons attributed to the decline in the revenue buoyancy is the decreasing central transfers to Telangana as compared with general category States. The State’s share of non-debt central transfers steadily fell from 23.5% of total receipts in 2015-16 to 15.1% in 2024-25. Telangana’s share in the horizontal pool of Union taxes declined from 2.437% during the XIV Finance Commission period to 2.102% in the XV commission award period with a marginal increase under the XVI Planning Commission.

Titled towards welfare subsidies and direct income transfers

Another area which was impacting the State’s finances is that development spending tilted heavily towards welfare subsidies and direct income transfers with low expenditure on human capital development. There is also serious dearth of research on outlay-outcome of various schemes as there was outcome assessment gap in measuring capital assets creation and the outcome of such expenditure.

Way forward

There is a need for instituting strict targeting mechanisms, social audits and outcome budgeting to eliminate inclusion errors and redirect funds towards human capital. The report outlines a multi-pronged way forward recommending improvement of formalisation for rebuilding revenue buoyancy and reiterating the case for incentivising growth to boost revenue receipts.

The government should consider restoring the TGFRBM risk weighted guarantees limits at 90% of the total revenue receipts against 200% as the enhanced limit was resulting in huge accumulation of the off budget borrowings.