Telangana’s 2026-27 Budget: Balancing the 2047 Vision with Debt and Disparity

Telangana was formed as the 29th state of India in 2014. Since then it has emerged as one of the fastest-growing states in India. Currently its per capita income is the highest among the major states. The state has recently presented its ambitious budget of USD 39 billion for the financial year (FY)  2026-27 which is the first budget since the unveiling of the long term vision of  “Rising Telangana 2047”. The strategy envisions making Telangana a $3 trillion economy. This ambitious target is highly vulnerable to high fiscal stress, debt-fueled low quality irrigation projects and stark regional inequality. 

Telangana’s State Gross Domestic Product (SGDP) at the time of its formation was USD 61 billion which has grown nominally at the compound annual growth rate (CAGR) of 12.9% to USD 215 billion in 2026. Its per capita income at USD 5,000 is nearly double of the national average. The service sector contributes about 65% of its GDP,  mainly due to the Hyderabad region which dominates nationally in information technology and related services. Agriculture has also grown at 11-12% per year which is about three times the national average, due to the state's heavy investment in irrigation projects and direct benefit transfers to farmers. 

The state budget for FY 2026-27 is pivoting towards capital expenditure of USD 5.7 billion which is 14.5% of its annual budget. Similarly, budgetary allocation to rural development, agriculture and irrigation is cumulatively around 25% (USD 9.5 billion) of budget expenditure, which is significantly higher than some of the major states. Most importantly, Telangana has focused on building irrigation infrastructure that has helped the state agriculture sector quadruple since 2014. However, the state has historically underinvested in its health and education sectors, which are fundamental to build human capital. Even In this budget,the combined expenditure on health and education is only around USD 5 billion or 12.80% of the total budget. 

The budget has operationalized the “Rising Telangana 2047” by formalizing the Core Urban Region Economy-Peri Urban Region Economy-Rural Agri Region Economy (CURE-PURE-RARE) model, for which it has allocated around USD 11.7 billion or 33% of the budget expenditure. Under the model, CURE economic region will primarily fall within the periphery of the Outer Ring Road (ORR) and will be a knowledge-driven service economy. The PURE economic region will fall between the ORR and Regional Ring Road (RRR) which will be an advanced manufacturing based economy. Beyond RRR, an agriculture-driven economy will form the RARE zone. To reach USD 1.20 trillion by 2034 and eventually to USD 3 trillion by 2047 the state is banking heavily on future technologies with a 30,000 acre Bharat Future City, Genomics Valley, EV and advanced manufacturing in the PURE economic region. 

Anchoring the economy on future technology requires massive investment, but the state’s capacity to invest in infrastructure development is constrained by the ghost of its past irrigation development expenditures. To fund these irrigation projects the state relied on off balance sheet borrowing on the books of state corporations. These borrowings are to the tune of USD 14-15 billion, out of which  USD 10.5 billion was borrowed only for the Kaleshwaram Irrigation Project. These off balance sheet borrowings did not show in the official state borrowings; when included, total borrowing by the state breaches the limit set by the Fiscal Responsibility and Budget Management (FRBM), 2003 at 36%. 

This leads to interest payments of around USD 3 billion which are nearly 8-9% of the state revenue receipt. In fact, committed expenditure is about 75% of the state's revenue. With this high committed expenditure, very little is left for strategic capital expenditure from the revenue receipt. At the time of state formation, Telangana was  a rare revenue surplus state but over the years it has become a revenue deficit state with FY 2025-26 estimated revenue deficit nearly at USD 1.5 billion or  0.7% of GDP. 

Another major criticism of the Tenanaga development model is that it is highly skewed towards the Hyderabad region. This region contributes around 54% of its SGDP. In per capita income terms Rangareddy is one of the highest per capita income districts in the country at USD 13,800; in contrast, Vikarabad’s per capita income is just USD 2,400. 

The state may also lack the capacity to plan and execute large infrastructure projects: for example, the Kaleshwaram Irrigation Project, the world’s largest multi-channel lift irrigation system, is non-operational due to structural issues. 

In short, Telangana has been a successful state in economic terms, but its success has mainly been driven by the Hyderabad region and the state has accumulated a huge debt to fund non-operational irrigation projects. To achieve USD 3 trillion of SGDP by 2047 it needs to abandon the mindset of “prestige projects” in favour of tight fiscal discipline, a more decentralized development model, and higher investment in health and education without which achieving a knowledge-driven inclusive economy is not possible.