Tripura’s Fiscal Tightrope: Nearing BANKRUPTCY? Part 1

By Dr. Bankim Debbarma

January 21, 2024

The economic landscape of Tripura, nestled in the North-Eastern region of India, is undergoing a tumultuous phase characterized by excessive market borrowing and a surge in debt liabilities. Motivated by the concerns raised in local newspapers, a comprehensive study spanning six years (2018-19 to 2023-24) was conducted. The article aims to understand the reasons behind market borrowing, ascertain the total market borrowing, and analyse the justification for these borrowings. Data were collected from various sources, including the yearly budget, financial statements, government circulars, and publications. The escalating debt situation has triggered concerns about the state’s financial health, pushing it perilously close to the brink of potential bankruptcy. In this comprehensive exploration, we delve into the intricate details of Tripura’s budgetary dynamics, meticulously analysing the reasons behind its growing reliance on market borrowing, the trajectory of its escalating debts, and the profound consequences of this fiscal approach.

The Alarming Trend

The prevailing shortage of funds has inflicted a severe blow to the timely execution of vital development plans across Tripura and other states in the North-Eastern region. Historically, the primary source of funding has been the ‘State Share of Fund’ allocated by the Union Government of India. However, Tripura has increasingly turned to market borrowing, leading to a substantial rise in debt liabilities and annual interest payments.

Market Borrowing and Escalating Debt

Over the past three fiscal years (2021-22 to 2023-24), Tripura’s budget has exhibited a concerning trend, peaking at Rs 27,654.45 crores in 2023-24. This surge is accompanied by a worrisome dependence on Union Government funds, resulting in escalated market borrowing. The state’s budget, starting at Rs 22,724.50 crores in 2021-22, has consistently grown, raising alarms about its fiscal health. Projections for the future paint a grim picture, indicating a potential spike in debt liabilities to Rs 33,000.00 crores by the 2027-28 Financial Year, with annual interest payments anticipated to reach Rs 2,500.00 crores. This forecast poses a serious threat to Tripura’s economic stability.

Financial Management: A Paradigm Shift Needed

Addressing this fiscal challenge necessitates a paradigm shift in financial management. The effective preparation of yearly budgets, prudent utilization of funds, and a focused approach on generating additional revenue are crucial elements of this transformation. Unfortunately, in many wings of the State Government, the emphasis lies on utilizing allocated funds with minimal attention to asset creation and revenue generation. This approach exacerbates the state’s reliance on market borrowing, leading to a vicious cycle of debt accumulation.

Market Borrowing Analysis: Unveiling Hidden Numbers

The financial strategy employed by the Government of Tripura involves sourcing funds through market borrowing and loans from a diverse set of financial institutions, ranging from the National Rural Electrification Corporation (NREC) to the National Highway Authority of India (NHAI). However, a notable challenge arises from the absence of specific records detailing the total amounts borrowed from these entities. This lack of transparency contributes to an information gap, leaving stakeholders and the public without a comprehensive understanding of the state’s financial commitments. The reliance on various sources signifies a multifaceted approach to securing funds, likely driven by strategic considerations and the availability of diverse financing options. Nevertheless, the undisclosed total market borrowing and loan amounts raise concerns about accountability and the ability to track the allocation of funds across different sectors. To foster financial transparency and enhance accountability, it is imperative for the government to address this information gap by making detailed records of market borrowing and loan amounts publicly available. This disclosure would enable stakeholders, including citizens and policymakers, to make informed assessments of the state’s fiscal health and the impact of financial decisions on various sectors.

Uncovering a Hidden Fiscal Burden: Discrepancies in Loan Reporting

The revelation of an estimated total principal loan amount of Rs 11,468.20 crores prior to the 2018-19 budget, calculated based on average interest rates, draws attention to a substantial financial burden. However, the net total principal loan amount, accounting for repayments, surged to Rs 12,490.70 crores by 2018-19. This noteworthy debt, attributed to both the borrowing and subsequent repayments by the Left Front government, remained inadequately highlighted in the initial budgets and was conspicuously absent from the Finance Minister’s State Budget Speech presented by the current ruling government during that fiscal year, prompting questions about transparency. The glaring discrepancy between the estimated and actual net total principal loan amount raises serious concerns about transparency in financial reporting. The failure to sufficiently emphasize or disclose this substantial debt burden, including the impact of the Left Front government’s borrowing, in the government’s budgetary presentations raises doubts about the clarity and openness of the fiscal management process. This situation underscores the critical importance of transparent communication in fiscal matters, emphasizing the urgent need for comprehensive disclosure and accountability to foster trust among stakeholders.

Projected Market Borrowing: A Glimpse into the Future

A comprehensive overview of yearly market borrowing and loan amounts spanning from the fiscal year 2018-19 to 2023-24 reveals a consistent and incremental uptrend in these financial transactions, indicating a burgeoning need for capital. Over the specified period, the cumulative figures portray a financial landscape marked by a total interest payment of Rs 7,519.45 crores, market borrowing amounting to Rs 15,043.58 crores, and loan repayment totalling Rs 4,715.82 crores. Projections for the upcoming years foretell a sustained surge in market borrowing, with an anticipated figure of Rs 33,747.43 crores by the 2027-28 Financial Year. This foresight underscores the persistence of the upward trend and signifies a continual demand for additional funds in the foreseeable future.

Analysing Budget Changes: A Discrepancy Unveiled

The revelation of budgetary changes from fiscal year 2018-19 to 2021-22 has raised concerns, particularly the alarming decrease in the total budget amount by Rs 9,795.65 crores. This, coupled with a substantial increase in market borrowing and loans by Rs 9,562.98 crores, necessitates a comprehensive exploration into the reasons behind this fiscal dissonance. Scrutinizing the apparent reduction in the overall budget is crucial to understanding resource allocation across sectors. Identifying areas that experienced cuts is vital, particularly regarding potential consequences for critical public services. An exploration into the alignment of government priorities with evolving populace needs is imperative for a holistic understanding of the fiscal landscape. The significant surge in market borrowing and loans amid a contracting budget raises fundamental questions about the fiscal strategy employed. Why did borrowing intensify when the overall budget was decreasing? Unravelling the purpose behind these financial decisions is crucial for evaluating the government’s economic stance and its implications on the country’s financial health. The core question arises: if the total budget amount has decreased by Rs 9,795.65 crores, why did the government borrow Rs 7,814.87 crores during that period? This apparent contradiction demands meticulous examination, shedding light on the dynamics between budget reduction and increased borrowing. Understanding where these increased market borrowings were allocated is essential for transparency and accountability. An in-depth examination should extend to the impact of these budgetary shifts on vital sectors, especially healthcare and education, which often bear the brunt of budget cuts. Specific consequences for public welfare must be understood, emphasizing potential challenges in delivering essential services to citizens. It is imperative to discern the destinations of the increased market borrowings to ensure effective utilization and address concerns arising from contradictory trends. Furthermore, the analysis should delve into the consistency of budget revisions. Were unforeseen economic challenges leading to mid-year adjustments, or do these revisions reflect a broader pattern of fiscal instability? Addressing these questions is essential for comprehending the government’s ability to predict and respond to economic changes effectively.

Budget Components: Unravelling Priorities

Further scrutiny of the budget components, such as market borrowing, repayment of loans, and interest payments, exposes inconsistencies. The emphasis on market borrowing in revised estimates compared to actuals is evident. The government’s focus on borrowing over repaying loans and managing interest payments raises concerns about financial prudence and planning.

Challenges in Revenue and Capital Expenditure

Examining revenue earnings and capital expenditure reveals another layer of fiscal challenges. While salary and wages have seen a substantial increase of 15.17%, capital expenditure has lagged behind, growing at a slower pace. This discrepancy raises questions about the allocation of funds and the effectiveness of capital investments in driving economic growth.

The Fiscal Deficit Enigma: Navigating through Numbers

In scrutinizing Tripura’s fiscal scenario, discrepancies in revenue, capital expenditure, and budget deficits emerge. Despite optimistic revenue estimates, the state grapples with capital expenditure consistently outpacing allocations, leading to fiscal and primary deficits. From 2018-19 to 2023-24, revenue estimates consistently exceed actual figures, questioning the efficacy of forecasting models. Simultaneously, capital expenditure surpasses budgetary allocations, challenging fiscal prudence. The actual budget deficits accumulate to Rs 5,968.96 crores, prompting queries about the justification for borrowing Rs 7,814.87 crores. This mismatch raises concerns about transparency in fund utilization and the need for a thorough fiscal reassessment. As Tripura navigates this fiscal puzzle, recalibrating financial strategies is crucial. Balancing revenue estimates, capital expenditure, and prudent borrowing is vital for sustainable growth, averting the pitfalls of an unbridled fiscal deficit.

 Setting the Stage for Reforms

Part 1 has unveiled the intricate details of Tripura’s fiscal challenges, emphasizing the alarming trend of excessive market borrowing and its repercussions. The discrepancy between budgetary practices and fiscal outcomes raises questions about the state’s financial management. In Part 2, we will delve into the consequences of these financial practices, exploring potential solutions and advocating for a paradigm shift in Tripura’s economic approach.

Please note that for a comprehensive understanding of the article, it is recommended to visit the Research Gate Public Profile at the following address: https://www.researchgate.net/profile/Bankim-Debbarma.

Dr. Bankim Debbarma is an Assistant Professor of Commerce at the Department of Commerce at Maharaja Bir Bikram College, Agartala.