Telangana can raise funds through bonds, says Centre

The bar on bond auctions had resulted in delayed payment of staff salaries this month

Hyderabad: The Centre is learnt to have granted “conditional approval” to the state government to raise funds through the auction of bonds this month, after hearing concerns of the state finance department officials. The bar on bond auctions had resulted in delayed payment of staff salaries this month.

However, the Telangana government strongly opposed another measure that it saw as an attempt by the Centre to limit borrowing by states.

The Centre had halted the government’s auction of bonds in 2022-23 starting April. Sources in the finance department revealed that the Centre had not given clarity on the schedule to auction bonds and the amount of funds permitted to be raised in May and June.

On Monday, Union finance ministry officials held a video conference with finance secretaries of all states on the auction of bonds. Telangana Special Chief Secretary, finance, K. Ramakrishna Rao took part in the meeting.

Rao registered a strong protest at the meeting, stating that halting the bond auction amounted to “discriminating against Telangana”. Union finance secretary T.V. Somanathan said that a few states were borrowing over and above the limit imposed by the FRBM (Fiscal Responsibility and Budget Management) Act by raising funds through corporations by giving bank guarantees. He said the Centre would treat such bank guarantees as part of the FRMB limit.

Ramakrishna Rao strongly opposed this, saying that fresh norms should be implemented from the new financial year. Considering bank guarantees given in the previous financial years as part of the FRBM limit was inappropriate.

Rao pointed out that the Centre had given states Rs 12,000 crore in 2020-21, Rs 15,000 crore in 2021-22 and Rs 1 lakh crore in 2022-23 towards capital expenditure (creation of assets) while clearly stating that these funds will not come under the FRBM Act.

"In the same manner, the Telangana government raised loans through various corporations by giving bank guarantees for capital expenditure, the money being spent on the Kaleshwaram project, Mission Bhagiratha etc. Such funds should not be treated as debt,” Ramakrishna Rao said. “Once these projects are complete, they will be able to repay the loans," he added.

The official also pointed out that the Centre was giving loans to states through HUDCO, NCDC etc but it was not treating them as debt although the state governments were repaying them.

He said that considering a few loans to be under the FRBM Act and not others amounted to discrimination. “Although the 15th Finance Commission did not make any recommendations on treating off-budget borrowing as debt, the Centre is doing so,” Ramakrishna Rao said.

He demanded that the Centre allow the government to auction bonds without discrimination and as per Constitutional norms. If not it would obstruct development, he said adding that Telangana topped the country in capital expenditure.

The state government is facing a severe fund crunch due to the bar on bond auctions. This resulted in delayed payment of salaries and pensions for staff this month.

The government had proposed to the Centre to raise Rs 15,000 crore through bonds in the first quarter — Rs 3,000 crore in April, Rs 8,000 crore in May and Rs 4,000 crore in June.

The Centre halted the bond auction, raising queries over the bank guarantees given by the state government on behalf of many corporations to mobilise funds for various projects, in addition to the auction of bonds.

In the Budget, the government had proposed to raise Rs 53,970 crore through the auction of bonds for 2022-23.

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