A social media post claims that the reason for the debt position of Telangana is that the state has raised huge debts from the World Bank.
Further, the post alludes that loans for the construction of the Kaleshwaram Lift Irrigation project were also raised from the World Bank. Through this article, let’s fact-check the claim made in the post. Telangana Government – World Bank loans?
Telangana State budget 2021-22 provides the details of the actual debt of the state by the end of March 2020 at Rs. 1,94,957.74 crores and the budget further estimates by the end of the financial year the total outstanding public debt to be at Rs. 2,86,804.64 crores, out of which the loans raised through the open market form a major chunk with Rs. 2,44,538.88 crores and the remaining portion of debts are raised through other financing instruments like corporations, banks and also loans from the central government, loans from Provident fund, etc.
However, all these loans are raised through different internal sources. And there is no mention of any debt or loan sourced from external financing agencies like World Bank, IMF, etc.
Detailed composition of loans raised from different sources and repayments made over the years are clearly mentioned in the budget documents. Even RBI’s study of state budget document enumerates the detailed composition of loans obtained through various sources of each state. Even there, is no mention of Telangana raising loans from the World Bank.
As far as the World Bank loans are concerned, several states have received Development policy loans (DPL’s) from the World Bank. Erstwhile Andhra Pradesh and Telangana have also received these loans in areas concerning social development of the state. However, these loans are transferred to the states through the concerned central ministry and not directly to the state.
Hence, from all these, it is evident that the debt of the Telangana state is due to loans raised from internal sources within the country and not any external agencies like World Bank or IMF, and other financial institutions.
Kaleshwaram Project :
As far as the Kaleshwaram project is concerned, the state government has raised loans internally from different sources like central sector corporations and consortiums of nationalized banks, and not from external sources such as the World Bank or any other institution.
Telangana state budget mentions the details of the loans raised for the construction of the project through various sources over the years and also about the repayments done. According to the budget, loans for the Kaleshwaram project were raised through separate corporations established under the irrigation department like Kaleshwaram Irrigation Project Corporation Limited (KIPCL) and Telangana State Water Resources Infrastructure Development Corporation Limited (TSWRIDCL).
Responding to a question seeking the details of funding for the construction of the project, the Union government in the Lok Sabha has stated that a little over Rs. 86,000 crores were sanctioned for the construction of the project in the form of loans from various corporations and consortiums of nationalized banks.
Limitations on State borrowings:
Usually, state governments borrow from different sources mentioned above to meet their budget deficit. However, state government borrowings come with some reasonable restrictions, as they cannot borrow over their financial capacity. There are certain constitutional obligations, wherein the center plays the role of watchdog in matters of state borrowings.
For example, Article 293 (3) of the Indian Constitution states that State governments cannot raise loans without the Centre’s consent if it has any loan outstanding which is repayable to the Government of India. Also, unlike the Centre, States usually do not directly borrow from external sources.
Back in 2017, the center has allowed financially sound States to borrow directly from external sources for their development projects. However, these borrowings would be included under the State’s borrowing limits set by the FRBM.
Another obligation is that both State and Central governments have to follow the Fiscal Responsibility and Budget Management (FRBM) regulations in matters related to borrowings so as to maintain the State’s fiscal position. Although these regulations are suggested by the Finance Commission, it is the Central government that accepts and directs the State governments to follow these regulations.
It is only when the Central government permits, the State governments can borrow more than the prescribed limit, as was the case during the COVID-19 pandemic. For example in 2020, due to the pandemic, the Central government raised the net borrowing limit for State governments from 3% of the GSDP to 5%.
Thus, the above explanation proves that Telangana did not raise any loan from the World Bank for the Kaleshwaram project.
To sum it up, the Telangana government did not raise any loans from the World Bank.