Weighed down by the growing debt burden, Telangana is hurtling towards an acute financial crisis.
The outstanding liabilities of India’s youngest state are expected to touch ₹5.46 lakh crore by March 2026, equal to 28.1 per cent of the Gross State Domestic Product (GSDP).
But when off-budget borrowings — loans raised by state corporations with government guarantees — are taken into account, the cumulative debt climbs closer to ₹6.6-₹6.7 lakh crore, accounting for nearly 35 per cent of the GSDP.
By August in the second quarter of the financial year 2025-26, Telangana had already borrowed ₹33,415 crore, exhausting 62 per cent of its annual borrowing limit. The pace of borrowing, combined with sluggish revenues, points to a continuing fiscal stress that can adversely impact the development agenda.
Each year, the fiscal deficit has hovered around ₹49,000–₹50,000 crore, indicating a structural imbalance between income and expenditure.
Soaring borrowings
The government’s dependence on borrowings has only deepened. In 2023-24, net borrowings and liabilities were ₹49,589 crore. In 2024-25, they stood at ₹48,322 crore. In just five months of 2025-26, borrowings have already reached ₹33,415 crore.
Revenue receipts continue to fall short of expectations. In 2024-25, the state realised only 76 per cent of its budgeted revenue. In the current year, up to August 2025, it managed just 28 per cent of the annual target.
While tax collections are holding at 34 per cent of the yearly target, non-tax revenues are a major weak link. Against a 2025-26 projection of ₹31,619 crore, non-tax collections stood at a mere ₹1,578 crore (5 per cent) by August. Grants-in-aid from the Centre have also lagged at just 7 per cent of the year’s estimate.
Fiscal stress
Telangana’s heavy welfare spending and rising committed expenditure are driving much of the fiscal stress.
Interest payments: ₹23,337 crore in 2023-24, rising to ₹26,688 crore in 2024-25. In just five months of 2025-26, ₹11,447 crore has already been paid.
Pensions: Grew from ₹16,841 crore in 2023-24 to ₹16,950 crore in 2024-25. By August 2025, they consumed ₹7,702 crore.
Salaries: ₹42,000+ crore in 2024-25; ₹20,141 crore in 2025-26 (till August).
Subsidies: ₹11,509 crore in 2024-25, with ₹7,492 crore spent in just the first five months of 2025-26.
Together, salaries, pensions, and interest consumed over 55 per cent of the revenue receipts in early 2025-26. It leaves little space for capital spending, which creates long-term assets. Capital expenditure has already fallen—from ₹43,562 crore in 2023-24 to ₹35,286 crore in 2024-25.
Off-budget borrowings
Beyond the official debt, Telangana has leaned heavily on off-budget borrowings raised by state corporations such as power utilities, irrigation boards, and housing and development agencies. These loans do not appear directly in the budget but are backed by government guarantees, making them de facto liabilities of the state.
The Comptroller and Auditor General and the Reserve Bank of India have repeatedly flagged this practice, warning that it masks the true scale of indebtedness. When these are included, Telangana’s total debt burden swells to nearly ₹6.6–₹6.7 lakh crore by March 2026, or about 35 per cent of GSDP—well above the comfort levels envisaged in the Fiscal Responsibility and Budget Management Act.
If current trends continue, Telangana risks breaching its annual borrowing ceiling before the close of 2025-26. Servicing debt will take up an even larger share of resources, forcing hard choices between welfare spending and developmental works.
Experts have warned that without corrective action, the state may find itself in a cycle where new borrowings are primarily used to service past debt. That would squeeze out investments in infrastructure, health, and education, slowing long-term growth.
The government must broaden its revenue base—through stronger tax compliance, rationalised subsidies, and efforts to secure higher central transfers—while prioritising productive capital expenditure over populist giveaways.
As of now, the welfare promises and hidden borrowings have combined to push cumulative debt beyond ₹6.5 lakh crore, with interest costs and repayment obligations fast outpacing income growth.
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