Telangana Budget Analysis 2018-19

The Finance Minister of Telangana, Mr. Eatala Rajender, presented the Budget for financial year 2018-19 on March 15, 2018. 

Budget Highlights

• The Gross State Domestic Product (GSDP) of Telangana for 2018-19 (at current prices) is approximately Rs 8,42,631[*] This is 15% higher than the revised estimate for 2017-18.
• Total expenditure for 2018-19 is estimated to be Rs 1,74,454 crore, a 22.4% increase over the revised estimates of 2017-18. In 2017-18, there was a decrease of Rs 7,140 crore (4.8%) in expenditure over the budget estimates.
• Total receipts (excluding borrowings) for 2018-19 are estimated to be Rs 1,41,282 crore, an increase of 22.8% as compared to the revised estimates of 2017-18. In 2017-18, total receipts (excluding borrowings) fell short of the budgeted estimate by Rs 4,935 crore.
• Revenue surplus for the next financial year is targeted at Rs 5,520 crore, or 0.7% of the Gross State Domestic Product (GSDP). Fiscal deficit is targeted at Rs 29,077 crore (3.5% of GSDP).  
• The departments of agriculture and cooperation, tribal welfare, and municipal administration are estimated to witness the highest growth in allocations over the previous year.

Policy Highlights

• The Panchayat Raj Bill will be introduced for comprehensive development of villages and to strengthen the Panchayat system.
• Investment support of Rs 4,000 per acre per crop for two crops will be provided to every farmer. Rs 12,000 crore is allocated for this purpose.
• Rhythu Bhima Pathakam, a farmer group insurance will be launched to provide life insurance cover of Rs five lakh. Rs 500 crore is allocated for this purpose.
• New medical colleges will be established at Mahaboobnagar, Siddipet, Nizamabad, Suryapet, and Nalgonda.
• An eco-pharma city to be established in Muchharla in Ranga Reddy District in an area of 19,331 acres.

Telangana Economy Economy: The growth in GSDP of Telangana has been increasing from 6.8% in 2013-14 to 10.4% in 2017-18.   The services sector, with a share of 65%, in the GSDP grew by 11.1% in 2017-18 over the previous year.     Agriculture, which contributes to 18% of the GSDP, grew by 6% in 2017-18.  Industries, with a share of 16%, grew by 6.1% in 2017-18.   Per capita income:  The per capita income of Telangana in 2017-18 (at current prices) is Rs 1,75,534.  This is more than the average national per capita income of Rs 1,12,764 in 2017-18.

Figure 1: Sector-wise growth in Telangana (year-on-year) Source: Telangana Socio Economic Survey 2017-18; PRS.

 Budget Estimates for 2018-19

• The total expenditure in 2018-19 is targeted at Rs 1,74,454 crore. This is 22.4% higher than the revised estimates of 2017-18.  This expenditure is proposed to be met through receipts (other than borrowings) of Rs 1,41,282 crore, and borrowings of Rs 33,200 crore.  Total receipts for 2018-19 (other than borrowings) are expected to be 22.8% higher than the revised estimates of 2017-18. 

Table 1: Budget 2018-19 - Key figures (Rs crore)

Note: BE is Budget Estimate; RE is Revised Estimate. GSDP has been calculated based on public debt as % of GSDP as given in the budget in brief document. 

Sources: Telangana Budget Documents 2018-19; PRS.

Expenditure in 2018-19

• Capital expenditure for 2018-19 is proposed to be Rs 48,99 crore, which is an increase of 36.5% over the revised estimates of 2017-18. This includes expenditure which affects the assets and liabilities of the state, and leads to creation of assets (such as bridges and hospitals), and repayment of loans, among others. 

In 2016-17, the actual capital expenditure was 58% more than the budgeted expenditure.  In 2016-17, Rs 3,245 crore was budgeted to be spent on debt repayment.  However, the state spent Rs 15,569 crore at the actual stage.

• Revenue expenditure for 2018-19 is proposed to be Rs 1,25,455 crore, which is an increase of 17.7% over revised estimates of 2017-18. This expenditure includes payment of salaries, maintenance, etc. 
• In 2018-19, Telangana is expected to spend Rs 18,286 crore on servicing its debt (i.e., Rs 6,594 crore on repaying loans, and Rs 11,691 crore on interest payments. This is 12.9% higher than the revised estimates of 2017-18. 

Table 2: Expenditure budget 2018-19 (Rs crore)

Notes: BE is Budget Estimate; RE is Revised Estimate. 

Sources: Telangana Budget Documents 2018-19; PRS.
Department expenditure in 2018-19

The departments listed below account for 62% of the total budget of Telangana in 2018-19.  A comparison of Telangana’s expenditure on key sectors with 18 other states can be found in the Annexure.

Table 3: Department-wise expenditure for Telangana Budget 2018-19 (Rs crore)

Notes: BE is Budget Estimate; RE is Revised Estimate. 

Source: Telangana Budget Speech 2018-19 and Demands for Grants; PRS.

Receipts in 2018-19

In 2015-16 and 2016-17, the state received significantly less non-tax revenue as compared to the budgeted estimate.  For example, in 2016-17, the state estimated to raise Rs 17,542 crore as non-tax revenue.  However, it fell short by 44.2% to Rs 9,782 crore.  Similarly, in 2015-16, there was a short fall of 35.7% at the actual stage as compared to the budget estimate.

• The total revenue receipts for 2018-19 are estimated to be Rs 1,30,975 crore, an increase of 21% over the revised estimates of 2017-18. Of this, Rs 82,726 crore will be raised by the state through its own resources (63% of the revenue receipts), and Rs 48,249 crore will be devolved by the centre in the form of grants and the state’s share in taxes (37% of the revenue receipts). 
• Non Tax Revenue: Telangana has estimated to generate Rs 8,974 crore through non-tax sources in 2018-19. This is an increase of 36% over the revised estimates of 2017-18.  This is due to Rs 3,000 crore estimated to be raised through sale of land and property.

Table 4: Break up of state government receipts (Rs crore)

Notes: BE is Budget Estimate; RE is Revised Estimate. 

Sources: Telangana Budget Documents 2018-19; PRS.

The central government will compensate state governments for any revenue loss due to the implementation of GST for a period of five years. In 2018-19, Telangana has estimated to receive Rs 1,500 crore from the central government as compensation. The state is estimated to receive Rs 1,200 crore in 2017-18 (revised estimates).

• Tax Revenue: The total own tax revenue of Telangana is estimated to be Rs 73,752 crore in 2018-19.  The composition of the state’s tax revenue is shown in Figure 2. 
• The tax to GSDP ratio is targeted at 8.8% in 2018-19, which is higher than the revised estimate of 8.4% in 2017-18. This implies that growth in collection of taxes is expected to be higher than the growth in the state economy.

Figure 2: Composition of Tax Revenue in 2018-19 (BE)

The State Goods and Services Tax (SGST) and Sales tax are the largest components contributing to 35% each to Telangana’s own tax revenue in 2018-19.  The SGST is expected to generate Rs 26,040 crore.    The state is expected to generate Rs 25,942 crore through sales tax.  Further, it is expected to raise Rs 10,600 crore from the state excise duty, which is levied on the manufacture of alcohol.    Tax revenue will also be generated by levying stamp duty on real estate transactions (Rs 4,700 crore), and taxes on vehicles (Rs 3,950 crore).

 Deficits, Debts and FRBM Targets for 2018-19

The Fiscal Responsibility and Budget Management (FRBM) Act, 2006 of the state provides annual targets to progressively reduce the outstanding liabilities, revenue deficit and fiscal deficit of the state government. 

Revenue deficit:  It is the excess of revenue expenditure over revenue receipts.  A revenue deficit implies that the government needs to borrow in order to finance its expenses which do not create capital assets. 

The budget estimates a revenue surplus of Rs 5,520 crore (or 0.7% of GSDP) in 2018-19.  This implies that revenue receipts are expected to be higher than the revenue expenditure, resulting in a surplus.  The estimate indicates that the state is expected to meet the target of eliminating revenue deficit, as prescribed by the 14^th Finance Commission.

Fiscal deficit:  It is the excess of total expenditure over total receipts.  This gap is filled by borrowings by the government and leads to an increase in total liabilities.  In 2018-19, fiscal deficit is estimated to be Rs 29,077 crore, which is 3.45% of the GSDP.  The estimate exceeds the 3% limit prescribed by the 14^th Finance Commission.  The Finance Commission had recommended that this limit may be relaxed to a maximum of 3.5% if states are able to contain their debt and interest payments to certain specified levels.  

Outstanding Liabilities:  It is the accumulation of borrowings over the years.  In 2018-19, the outstanding liabilities are expected at 21.4% of the GSDP. 

Table 5: Budget targets for deficits for Telangana (% of GSDP)

Note: The Statement of Fiscal Policy did not provide targets for revenue surplus and fiscal deficit.

Sources: Telangana Budget Documents 2018-19; PRS.

Figures 3 and 4 show the trend in deficits and outstanding liabilities targets from 2016-17 to 2018-19:

Figure 3: Revenue Surplus and Fiscal Deficit (% of GSDP) Sources: Telangana Budget Documents 2018-19; PRS.

Figure 4:Outstanding liabilities (% of GSDP) Sources: Telangana Budget Documents 2018-19; PRS.

 Annexure

The graphs below compare Telangana’s expenditure on four key sectors as a proportion of its total budget, with 18 other states.[2] 

• Education: Telangana has allocated 8.2% of its total budget on education in 2018-19.  This is almost half of the average expenditure share allocated to education by 18 other states (using 2017-18 BE).  Between 2016-17 and 2018-19, there is a gradual decrease in the spending on education from 10.6% to 8.2%.
• Health: Telangana has allocated 4.7% of its total expenditure on health, which is marginally lower than the average expenditure of 18 other states.  However, the overall spending on health has been increased from 4.3% in 2016-17 to 4.7% in 2018-19. 
• Agriculture: The state has allocated 10.9% of its total budget towards agriculture and allied activities.  This is higher than the allocations of 18 other states (6.4%).  In 2016-17 and 2017-18, spending on agriculture was 5.9% of the total budget.
• Rural Development: Telangana has allocated 4.6% of its expenditure on rural development.  This is lower than the average (5.6%) of the 18 other states.  Further, the share of expenditure on rural development has decreased from 5.8% in 2016-17 to 4.6% in 2018-19.

Note:  2016-17, 2017-18 (BE), 2017-18 (RE), and 2018-19 (BE) figures are for Telangana.

Source: Annual Financial Statement (2017-18 and 2018-19), various state budgets; PRS.

 

[*] Note: GSDP has been calculated based on public debt as % of GSDP as given in the budget in brief document. 

[2] The 18 states apart from Telangana are: Andhra Pradesh, Assam, Bihar, Chhattisgarh, Delhi, Gujarat, Haryana, Jammu and Kashmir, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Odisha, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh, and West Bengal.

 

DISCLAIMER: This document is being furnished to you for your information.  You may choose to reproduce or redistribute this report for non-commercial purposes in part or in full to any other person with due acknowledgement of PRS Legislative Research (“PRS”).  The opinions expressed herein are entirely those of the author(s).  PRS makes every effort to use reliable and comprehensive information, but PRS does not represent that the contents of the report are accurate or complete.  PRS is an independent, not-for-profit group.  This document has been prepared without regard to the objectives or opinions of those who may receive it.