During the first quarter of FY25, Andhra Pradesh and Telangana faced pronounced fiscal imbalances as revenue growth remained subdued while borrowings surged to meet expenditure needs. Both states relied heavily on market loans to sustain government operations, reflecting structural strains in their public finance frameworks. While tax collections showed modest year-on-year improvements, the gap between revenue inflows and committed expenditures widened. This reliance on debt underscores the fiscal stress confronting state governments amid rising welfare obligations and stagnant central transfers. The situation calls for urgent policy recalibration to ensure long-term fiscal stability and sustainable public service delivery in both states.
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Revenue Challenges Undermine Fiscal Stability
In the April to June quarter of FY25, Andhra Pradesh and Telangana registered lackluster growth in their own tax revenue, failing to keep pace with increasing expenditure commitments. Andhra Pradesh reported Rs. 24,583 crore in own tax revenue, while Telangana fared marginally better at Rs. 31,322 crore. Though these figures reflect a modest year-on-year rise, they fell short of expectations considering the states’ escalating financial obligations.
The subdued collections are attributed to uneven growth in key revenue components such as GST, VAT, and stamp duty. The tepid revenue performance has heightened concerns about fiscal sustainability, especially as both governments continue to roll out large-scale welfare schemes and capital-intensive infrastructure projects.
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Borrowings Dominate Fiscal Arithmetic
With own revenue insufficient to meet growing expenditures, both Andhra Pradesh and Telangana turned to debt markets to bridge the fiscal gap. Andhra Pradesh borrowed Rs. 19,000 crore in the first quarter, while Telangana raised Rs. 14,500 crore, marking a significant dependence on market borrowings to sustain operations.
Notably, Andhra Pradesh’s borrowing in Q1 was the third highest among all Indian states, trailing only Maharashtra and Tamil Nadu. Telangana, too, ranked among the top borrowers. The scale of borrowing has raised alarms among economists and credit agencies, who warn of rising debt-service burdens that could crowd out developmental spending in the medium term.
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Widening Fiscal Deficits Raise Long-Term Concerns
Both states are grappling with persistent fiscal deficits driven by rising committed expenditures—including salaries, pensions, and interest payments—which consume a large portion of their budgets. These liabilities, combined with slowing revenue growth, are eroding fiscal space.
Despite efforts to rationalize subsidies and optimize tax administration, the mismatch between income and expenditure persists. Andhra Pradesh, in particular, has seen higher outflows toward freebie-driven programs, which, while politically popular, have strained the state’s budgetary discipline. Telangana faces similar pressure from social welfare guarantees and irrigation-related expenditures.
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Centre-State Dynamics Add to Fiscal Strain
The fiscal stress is compounded by sluggish devolution of central transfers and delays in grant disbursements under various schemes. While the central government has made disbursements aligned with the Finance Commission formula, discretionary transfers have remained limited. This has left states with fewer options for revenue augmentation and forced them to rely more heavily on internal borrowings and off-budget funding instruments.
Such dependence risks pushing both Andhra Pradesh and Telangana into a debt spiral if corrective measures are not taken soon. Fiscal consolidation, therefore, requires a coordinated effort, involving not only expenditure reform at the state level but also greater predictability in central support.
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Road Ahead: Need for Fiscal Reforms and Structural Overhaul
To navigate the fiscal minefield, both Andhra Pradesh and Telangana must prioritize expenditure rationalization, enhance revenue mobilization, and adopt transparent borrowing practices. Digitalization of tax systems, strengthening compliance, and unlocking non-tax revenue sources like mining and public asset monetization are vital.
Moreover, greater fiscal discipline in implementing welfare schemes—through better targeting and efficiency audits—can reduce leakages and create space for investment-led growth. Public-private partnerships and increased investor confidence will also play a pivotal role in bolstering state revenues over time.
In the absence of structural reforms, continued overreliance on debt will not only constrain economic development but also endanger intergenerational fiscal equity in both states.
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Conclusion:
The first-quarter fiscal performance of Andhra Pradesh and Telangana reveals a troubling reliance on borrowing, exposing structural weaknesses in their public finance models. As both states juggle populist commitments with developmental needs, a clear and credible path to fiscal consolidation is essential. Without timely reforms, the growing debt burden may hinder their long-term economic aspirations and pose challenges to inclusive growth.
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