Telangana's Fiscal Paradox: High Growth Meets Persistent Budget Shortfalls
Hyderabad presents a striking economic paradox. Despite boasting one of India's highest per capita incomes and consistently ranking among the fastest-growing states in terms of GDP, Telangana has grappled with persistent and significant budget shortfalls over the past decade. A deep analysis reveals a troubling gap between ambitious financial projections and the harsh reality of revenue collection.
A Decade of Revenue Discrepancies
Between the financial years 2015-16 and 2023-24, Telangana consistently failed to meet its own revenue targets. On average, the state's annual revenue collections fell a staggering 21% short of the projections made in its original budgets. This represents the widest gap recorded among all Indian states during this period. Consequently, actual expenditure was also curtailed, averaging 16% less than the initially budgeted outlay each year.
These critical findings are detailed in the State Finances Report for 2024-25, which meticulously examines how states performed against their budgetary estimates. While states across India collected, on average, about 10% less revenue than projected during this timeframe, Telangana and its neighbor Andhra Pradesh recorded the steepest shortfalls among larger states, at 21% and 20% respectively. In contrast, Karnataka emerged as the only major state that successfully met its revenue targets.
Understanding the Budget Structure and the Gap
To comprehend this persistent shortfall, one must understand the three key components of a state budget: Budget Estimates (BE), Revised Estimates (RE), and Actuals. Budget Estimates are the initial projections for the upcoming financial year, approved by the state legislature. Revised Estimates are mid-year adjustments based on real-time financial performance. Actuals are the final, audited figures from the previous year.
Comparing these figures provides a clear assessment of a government's forecasting accuracy. In Telangana's case, the consistent and wide chasm between the optimistic Budget Estimates and the more sober Revised or Actual figures over several years points to a pattern of persistent revenue overestimation. When anticipated income fails to materialize, spending plans are inevitably scaled down, explaining the 16% average reduction in actual expenditure.
Limited Options and Mounting Pressure
When revenues fall short, states face constrained choices: cut spending or increase borrowing. However, borrowing capacity is strictly capped under the national Fiscal Responsibility and Budget Management (FRBM) framework and limits set by the central government. When borrowing legroom is insufficient, expenditure cuts become the only viable, albeit painful, option.
Signs of this fiscal pressure are acutely visible in the current financial landscape. Telangana's budget had proposed borrowing Rs 54,000 crore. Yet, by the end of December 2025, the state had already borrowed Rs 69,930 crore—a figure 22% higher than the original target, indicating deeper-than-expected revenue needs.
The Risk of a Vicious Fiscal Cycle
Financial experts warn that repeated revenue shortfalls coupled with higher borrowings can trap a state in a vicious cycle. Escalating debt servicing costs can further strain future budgets, limiting funds available for development and welfare. To break this cycle, experts recommend a multi-pronged strategy: improving streams of non-tax revenue, rigorously cutting down unnecessary expenditure, and conducting a thorough cost-benefit assessment of existing subsidy programs.
Telangana's economic growth narrative remains robust on paper. However, the widening and persistent gap between budgetary promise and fiscal performance raises serious questions about the state's long-term fiscal planning and sustainability. These concerns are particularly pressing at a time when demands for development projects and welfare spending continue to remain high, testing the balance between growth aspirations and fiscal responsibility.
