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Why Does Telangana State Have to Pay ₹66,000 Crore 

Overview of Telangana's Fiscal Journey

Since its formation in 2014, Telangana has transformed from a nascent state into an economic powerhouse, particularly in IT and pharmaceuticals. Yet, this progress hasn't come cheap. Recent data shows the state's debt-to-GSDP ratio at around 28.1% for 2025-26, lower than some peers but still a concern amid rising deficits. The fiscal deficit for 2025-26 is targeted at 3.0% of GSDP (₹54,010 crore), reflecting ongoing imbalances between revenue and expenditure.

Why Debt Matters for Everyday Citizens

For residents, this translates to potential hikes in taxes or cuts in services. But it's not all doom—strategic borrowing has irrigated farmlands and built roads, boosting rural incomes. The key is balance: Research suggests that while debt fuels short-term growth, unchecked accumulation could slow long-term prosperity.

Quick Tips for Policymakers

Prioritise high-return projects and diversify revenues through FDI in tech hubs like Hyderabad. Avoid over-reliance on borrowings by streamlining subsidies.

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The Hidden Burden: Telangana's Soaring Debt in 2025 – Revealed Causes, Shocking Impacts, and Proven Strategies for Fiscal Recovery

Meta Description: Uncover the secrets behind Telangana's debt crisis exceeding ₹5 lakh crore in 2025, its economic toll, and expert tips to boost revenue and slash burdens. Essential reading for stakeholders seeking sustainable growth.

Imagine a state bursting with potential—home to global IT giants, thriving agriculture, and innovative startups—yet quietly wrestling with a financial giant that threatens to slow its stride. That's Telangana in 2025. Formed just over a decade ago, this young Indian state has achieved remarkable socio-economic leaps, but at a hefty price. With public debt projected to surpass ₹5 lakh crore by the end of 2025-26, and annual debt servicing eating into budgets, it's time to peel back the layers. In this comprehensive guide, we'll explore the roots of this debt, its ripple effects on the economy and citizens, and actionable strategies to turn the tide. Whether you're a policymaker, investor, or curious resident, you'll find proven insights to understand and address this challenge.

What's new in this update? We've incorporated the latest 2025-26 budget data from official sources, including fresh CAG reports and RBI analyses, to ensure you're getting the most current picture. Plus, we've added new case studies on debt restructuring and comparisons with other states for deeper context.

Understanding Telangana's Debt: A Deep Dive into the Multi-Faceted Challenge

Telangana's debt story begins with its birth. When it separated from Andhra Pradesh in 2014, the state inherited limited infrastructure and had to build from scratch. This meant pouring funds into essentials like roads, hospitals, and schools. But why has debt ballooned to such levels? Let's break it down.

The Development Push After Bifurcation Post-separation, Telangana faced a vacuum in the administrative setup. Key sectors—healthcare, education, transport, and irrigation—demanded immediate attention. For instance, the state invested heavily in building a new capital city infrastructure in Hyderabad, which alone required billions. According to recent analyses, this foundational spending contributed significantly to early debt accumulation. By 2024-25, the fiscal deficit had already hit ₹49,255 crore, setting the stage for further borrowings.

Think of it like starting a new household: You need furniture, appliances, and utilities right away, often on credit. Telangana's GSDP grew impressively at around 10-12% annually in recent years, but expenditures outpaced revenues, leading to chronic deficits.

Ambitious Infrastructure Megaprojects Fueling the Fire Telangana didn't stop at basics; it launched game-changing projects. The Kaleshwaram Lift Irrigation Scheme (KLIP), Mission Bhagiratha for drinking water, and Mission Kakatiya for tank restoration are prime examples. These initiatives aimed to transform agriculture and water security but came with eye-watering costs.

Take KLIP: Originally estimated at ₹81,911 crore, costs have escalated to over ₹1.47 lakh crore due to design changes and delays. It lifts water from the Godavari River to irrigate 18 lakh acres, boosting crop yields by up to 30% in drought-prone areas. Mission Bhagiratha, costing around ₹40,000 crore, piped safe water to over 2.3 crore households, reducing waterborne diseases. Meanwhile, Mission Kakatiya restored 46,000 tanks, enhancing groundwater recharge and farmer incomes.

These projects are transformative—agricultural output rose 15% post-implementation—but they've added layers to the debt pile. In 2025, defaults on related loans have even threatened non-performing asset status for lenders.

Persistent Fiscal Imbalances: The Root Cause At the heart of it all are mismatches between income and outgoings. Telangana's revenue streams are dominated by taxes (GST, excise) and central grants, but welfare schemes like Rythu Bandhu (farmer support) and pensions gobble up 25-30% of the budget. In 2024-25, salaries, pensions, and interest payments alone accounted for 52% of revenue receipts.

Diversification is limited; while IT contributes 20% to GSDP, agriculture (15%) remains volatile due to monsoons. The 2025-26 budget shows a revenue deficit of ₹2,700 crore, forcing more borrowings. External shocks like COVID-19 exacerbated this, pushing debt-to-GSDP from 22% in 2019 to 28.1% now.

Source: PRS India and CAG reports.

This table highlights the upward trend, underscoring the need for intervention.

Breaking Down the Annual Repayment Obligation: Sources and Nature

Telangana's debt isn't a monolith—it's a mix of sources and types, each with unique pressures. Total outstanding liabilities could hit ₹5.04 lakh crore by the end of 2025-26, with plans to raise ₹64,539 crore more.

Sources of Borrowing

• Domestic Loans: Primarily from RBI, public banks, and NABARD. These form 60-70% of borrowings, offering lower rates but tied to central policies.
• International Institutions: World Bank and ADB fund projects like irrigation, with long tenors but conditionalities. For KLIP, ADB provided ₹5,000 crore. 
• Market Instruments: State Development Loans (SDLs) via auctions—Telangana raised ₹6,000 crore in September 2025 alone. These are flexible but market-sensitive.

Nature of the Debt

• Short-Term: For liquidity, like treasury bills, with high interest (7-8%) and quick repayments, adding stress.
• Long-Term: 20-40 year loans for infra, locking in commitments. Telangana's strategy includes elongating maturities to 40+ years to ease annual burdens. Annual servicing? Interest alone is ~₹27,600 crore (based on monthly ₹2,300 crore), plus principal ~₹20,128 crore, totaling around ₹47,728 crore—close but adjusted from older estimates.

The Economic Fallout: How Debt is Reshaping Telangana

Debt isn't just numbers—it's a force shaping lives and economies. Here's the impact.

Squeezing Developmental Spending With 12-15% of the budget going to interest, funds for new schemes dwindle. Emerging sectors like renewables (Telangana aims for 20 GW solar by 2030) get shortchanged, potentially stalling job creation.

Heavy Interest Loads Interest payments rose from ₹15,162 crore in 2024-25's first half to projected ₹28,000+ in 2025-26. This "crowding out" effect means less for education or health. Threat to Credit Rating: A 28.1% debt-to-GSDP risks downgrades, hiking future costs. Compared to Tamil Nadu (26.1%), Telangana fares okay, but Punjab's 50%+ warns of pitfalls. 

Tax Hikes and Citizen Strain To bridge gaps, states often raise taxes—property or excise—burdening households. Businesses might face higher compliance, deterring FDI. On the flip side, debt has positives: Irrigated lands increased farmer incomes by 20%, and IT growth added 5 lakh jobs.

Proven Strategies for Smarter Debt Management

The good news? Telangana can rebound with targeted moves. Experts advocate a multi-pronged approach.

Expanding Revenue Streams

• Tax Optimisation: Streamline GST and property taxes for 10-15% efficiency gains. Telangana's tax buoyancy is 1.2, above the national average.
• Diversification: Leverage Hyderabad's IT status for FDI—aim for $10 billion annually. Promote pharma and EVs for new jobs.

Rationalising Expenditures

• Prioritise Returns: Focus on projects with BCR >1.0, unlike KLIP's 0.75.
• Cut Inefficient Subsidies: Phase out non-targeted aids, saving ₹5,000-10,000 crore.

Debt Restructuring

• Refinancing: Negotiate lower rates—Telangana sought KLIP loan relief from the Centre.
• Maturity Extension: Shift to 40-year terms to reduce annual outlays by 20%.
• Embracing Public-Private Partnerships (PPPs) can offload risks—e.g., in highways or airports. Telangana's PPP policy attracted ₹20,000 crore in 2024. Examples: Hyderabad Metro's success saved public funds.

Case Study: The Kaleshwaram Lift Irrigation Scheme – Triumph or Trouble?

KLIP stands as a poster child for Telangana's ambitions. Launched in 2016, it pumps 2 TMC of water daily, irrigating 18 lakh acres and generating 4,000 MW of hydropower. Benefits: Crop yields up 25%, rural GDP boost of ₹10,000 crore annually.

Yet, CAG flags it as unviable: Costs overrun by 80%, annual servicing ₹712-14,462 crore. Structural issues, like pier sinking in 2023, added repairs. Lesson: Balance ambition with feasibility studies.

Visual Aids Suggestion

• Debt Composition Infographic: Pie chart showing 60% domestic, 20% international, 20% market borrowings.
• KLIP Flowchart: Steps from pumping to distribution, with benefits highlighted.
• Debt Trend Graph: Line chart from 2014 (₹72,658 crore) to 2025 (₹5+ lakh crore).
• Revenue Pie Chart: 30% debt service, 40% welfare, 30% development.

For more on similar projects, check our article on Andhra Pradesh's Fiscal Strategies. Externally, see RBI's State Finances Report.

Wrapping Up: Charting a Course for Fiscal Resilience

Telangana's debt, while daunting at over ₹5 lakh crore, mirrors its bold vision for progress. From bifurcation-era builds to megaprojects like KLIP, borrowings have sparked growth. Yet, with fiscal deficits at 3% of GSDP and servicing costs nearing ₹48,000 crore annually, the risks—constrained spending, rating dips, and tax pressures—are real.

By broadening revenues through IT-FDI, rationalising spending, restructuring debts, and leveraging PPPs, the state can achieve sustainability. As CM Revanth Reddy's 'Telangana Rising 2047' envisions a trillion-dollar economy, prudent management is key.