Reserve Bank of India flags Telangana’s fiscal stress
The RBI has warned that Telangana’s rising debt and fiscal deficit could make the State’s finances vulnerable. Reliance on market borrowings, weak sinking fund reserves, and slower revenue growth have raised concerns about long-term sustainability and repayment capacity.
Hyderabad: The Reserve Bank of India (RBI) has flagged concerns over Telangana’s fiscal trajectory, warning that the State’s deficit and debt burdens are rising amid slowing revenue growth. While the economy remains relatively stable at present, the RBI cautioned that the fiscal situation could become vulnerable if corrective steps are not taken in time.
According to the RBI’s latest State Finances – A Study of Budgets report, Telangana has become increasingly dependent on market borrowings. Open market loans rose from Rs.49,618 crore in 2023-24 to Rs.56,209 crore in 2024-25, highlighting growing reliance on debt to bridge resource gaps. By the end of December in the current fiscal (2025-26), the Congress government raised Rs.66,000 crore through State securities auction.
The central bank observed that although the Union government has extended interest-free loans for capital expenditure, several States, including Telangana, continue to witness rising overall debt levels, partly due to additional borrowings outside regular budgetary channels. The RBI noted that long-term borrowing, while easing short-term pressure, shifts repayment risks to future generations.
The report analysed the maturity profile of State borrowings, showing a significant portion of Telangana’s liabilities are structured for long-term repayment. While this provides immediate fiscal space, the RBI underlined that such a strategy defers rather than reduces debt stress. The observation comes as the Congress government has rescheduled existing loan repayments to increase its borrowing capacity.
Low safety cushion in sinking fund
A key area of concern highlighted by the RBI is the Consolidated Sinking Fund (CSF), which is meant to act as a buffer for debt repayment. The CSF corpus stands at just 1.8 per cent (Rs.8,019 crore) of outstanding liabilities, lower than that of several large States. This limited reserve reduces the State’s ability to absorb future repayment shocks.
Deficit pressures persist
Telangana’s fiscal deficit stood at Rs.49,963 crore in 2023-24, moderated to Rs.46,764 crore in 2024-25, but is projected to rise again to Rs.54,009 crore in 2025-26 as per budget estimates. However, by the end of December, the fiscal deficit had reached Rs.65,930.31 crore, signalling rising fiscal strain.
The RBI attributed widening deficits in several States to a mismatch between revenue growth and rising expenditure commitments, particularly in welfare and capital sectors.
CAG indicators
According to Comptroller and Auditor General (CAG) economic indicators at the end of December 2025-26, Telangana realised Rs.1.13 lakh crore, which is 65 per cent of the tax revenue target of Rs.1.75 lakh crore. With just three months left in the fiscal year, concerns are being raised over weak revenue mobilisation. This represents a marginal improvement from 62 per cent of tax revenue targets achieved by December 2024-25.
Comparatively, borrowings and liabilities stood at Rs.65,930 crore, 22 per cent above the budgeted Rs.54,009 crore for the corresponding period. The State government is expected to borrow an additional Rs.10,600 crore during the final quarter of the financial year.
RBI’s redflag to Telangana
– Market borrowings shot up from Rs.49,618 in 2023-24 to Rs.65,930 crore (by December 2025) in 2025-26.
– Poor contribution to Consolidated Sinking Fund at just 1.8 per cent (Rs.8,019 crore) of outstanding liabilities.
– Rising fiscal deficit from Rs.49,963 crore in 2023-24 to Rs.65,930 crore (by December 2025) in 2025-26.
– Tax revenue stood at Rs.1.13 lakh crore by December 2025, i.e. 65 per cent of Rs.1.75 lakh crore target.
– Borrowings shot up to Rs.65,930 crore by December 2025, i.e. 122 per cent of Rs.54,009 crore budget estimates.
