Cash crunch: Telangana extends deferment of 50% salary to May

Odisha says March order not reversed yet; despite liquidity support by the Centre, many states continue salary deferments

Many state governments are continuing to defer salary payments to find the requisite liquidity to spend on steps to control Covid-19 pandemic and alleviate people’s hardships. With the lockdown burning a big hole in its revenue, the Telangana government on Thursday announced that it will withhold 50% of expenditure on salaries and pensions for the third straight month of May, a move that would give it temporary liquidity boost of around Rs 4,200 crore over the three month period. Telangana’s monthly salaries-pension bill is around Rs 2,800 crore.

A senior official from the Odisha government told FE on Thursday that on order issued by the state in end-March, deferring 50-70% of salaries for certain categories of officers and legislators, would continue to be in effect till reversed. Andhra Pradesh and Rajasthan deferred part of salaries for March payable in April and April payable in May, while Kerala deferred salary by 20% for five months (April onwards).

In Telangana, the salary deferment will be 75% for public representatives (ministers, MLAs/MPs etc), 60% for all-India service officers, 50% for state government employees. Pensioners will receive 75% of their entitlement now and the balance at a later date.

Telangana’s move, announced by state chief minister K Chandrasekhar Rao indicates that the several steps taken by the Centre to boost cash position of states like hike in borrowing limit and prompt transfers of tax revenues haven’t been enough to dissuade some states from resorting to steps like salary deferments.

Telangana’s overall revenue in April dropped to just Rs 3,100 crore (including Rs 982 crore received from the Centre as tax pool share), against monthly average of around Rs 12,000 crore, estimated for FY21. “The state’s revenue generation has nosedived and this, coupled with the Centre’s reluctance to come to the rescue of the state, has resulted in the treasury reaching near empty levels,” Rao said after a review meeting on the state’s economic position.

The chief minister also expressed disappointment at the Centre’s decision not to reschedule the loan repayments by the state. The state government’s annual debt servicing spending is to the tune of Rs 37,400 crore. With this (the Centre not agreeing to reschedule repayments), the state has no option but to pay the instalments in time, in these difficult times,” Rao added.

The conditions imposed by the Centre while raising the borrowing limit for the states to 5% of the respective gross state domestic product from 3% is also proving to be a stumbling block for some states. “Though there was an increase in the Fiscal Responsibility and Budget Management Act (FRBM) limits by the Centre, there were conditions imposed by it and hence (much of) the additional loans might not be raised,” Rao said.

According to the finance department officials, the state government had relaxed lockdown guidelines to increase the revenues, but the income did not increase substantially. “Income from transport, registration and other departments was also not much either,’’ officials pointed out. It is learnt that the state government is working out on a revival plan for generating more revenues and it is likely to be announced during the first week of June.

Incidentally, the state government’s plan to raise additional funds, to the tune of Rs 20,000 crore after the borrowing limits were raised by the Centre, also fell flat. “Though there was an increase in the Fiscal Responsibility and Budget Management Act (FRBM) limits by the Centre, there were conditions imposed by the Central government and hence additional loans could not be raised. If salaries of the employees and pensions were paid, the expenditure would be more than Rs 3,000 crore. The entire treasury will be empty. Henceforth, no payment can be made nor any work can be undertaken,’’ the chief minister said.

“The state’s revenues hit a new low during the lockdown with April collections being just 17% of monthly average, Telangana finance minister T Harish Rao said. The government gets Rs 10,800 crore a month on account of GST, excise, stamps and registration, mining, and others in normal times.

Further, the monthly financial assistance of Rs 1,500, which was announced during the lockdown for the poorer sections, will also be stopped from June. As the economy is opened with trade activities starting from Thursday, they can find livelihood options, Rao added.

Telangana, which had a fiscal deficit of 3.1% in FY19, was aiming to bring it down to 2.26% in FY20RE. For FY21, the deficit is pegged at 3% (BE). The state budget estimated a revenue surplus of Rs 4,482 crore (or 0.41% of (GSDP) in FY21. Its revenue receipt were estimated to be Rs 1,10,973 crore in FY20RE or an average Rs 9,248 crore/month.

The monthly revenue receipts are projected to be Rs 11,934 crore in FY21BE. Telangana’s debt to GSDP was 21.3% in FY18, was pegged to be 16.7% in FY19RE and 17% in FY20BE.

(With inputs from Prasanta Sahu in New Delhi)