Telangana crosses fiscal red line with Centre’s unusual nod

Telangana crosses the FRBM borrowing limit for the first time, with the Centre granting an unusual nod for additional loans. Economists warn rising debt and stagnating revenues could strain the State’s finances and development spending

Hyderabad: For the first time since its formation, Telangana’s borrowings have exceeded the Fiscal Responsibility and Budget Management (FRBM) limits set for the current fiscal. The Congress government is set to borrow an additional Rs 5,500 crore beyond the approved estimate of Rs 54,009 crore under FRBM.

According to the Reserve Bank of India’s (RBI) latest calendar of market borrowings for the third quarter of 2025-26, the Revanth Reddy government has placed an indent for Rs 9,600 crore between October and December. The State has already borrowed Rs 49,900 crore in the first two quarters, accounting for over 92 per cent of its annual borrowing ceiling of Rs 54,009 crore. The State was left with only Rs 4,109 crore for rest of the financial year. But with this fresh proposal, total market loans will touch Rs 59,500 crore by end of December itself, overshooting the FRBM cap by a substantial margin.

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Surprisingly, the State government’s bold move came with blessings from the Centre. Highly placed sources have confirmed that the BJP-led Centre gave an unusual nod to the Congress government in Telangana, allowing the latter to borrow around Rs 15,000 crore in addition to the initial estimates for 2025-26. Under the State budget, Telangana had pegged its total borrowing for 2025-26 at Rs 64,539 crore, including internal debt and central grants, but the FRBM framework allows only Rs 54,009 crore through market loans.

“The Centre cleared the State government’s request to borrow an additional Rs 15,000 crore for the current fiscal, taking the total permissible borrowing to nearly Rs 69,000 crore. This is an unprecedented relaxation from the Union government,” sources said. With this development, the State will be able to borrow another Rs 9,500 crore in the last quarter.

The development has sparked sharp debate in financial circles over why the BJP-led Centre has bent FRBM norms to favour a Congress-ruled State, particularly when Telangana’s total public debt has already crossed Rs 4.8 lakh crore.

“This kind of fiscal indulgence is dangerous. Telangana is walking on thin ice. If this trend continues, Telangana will soon cross the red line on fiscal sustainability,” warned a senior economist familiar with State finances. He also cautioned about its adverse impact on the State’s debt-to-GSDP ratio which is currently around 28 per cent.

During the BRS regime, Telangana had largely adhered to FRBM norms and maintained one of the best debt-to-GSDP ratios in the country. In contrast, the Congress government’s unchecked borrowing, coupled with falling GST collections and revenue stagnation, reflected growing financial distress and poor fiscal management, which could have both short-term and long-term impact on the State budget and economy.

With additional market loans in the pipeline, economists have warned that the burden of repayment and interest will fall squarely on taxpayers and also tighten the noose on development spending.