How Centre's withholding of ₹13,537 crore loan for Hyderabad Metro doesn't bode well for Telangana

In a new chapter of choking funds to Opposition states, the Union government has withheld a loan of ₹13,527 crore granted by the Indian Railway Finance Corporation (IRFC) for refinancing the existing debt of Hyderabad Metro Rail Limited (HMRL) and facilitating the Telangana government's takeover of the project. The loan agreement was signed on May 25 and publicly announced the next day. The loan amount that was supposed to be disbursed by June 15 is now effectively shelved due to the Centre's insistence on changes to repayment and disbursement conditions in an already signed loan agreement. Telangana has already paid ₹84.32 crore as an upfront fee for the loan, and it was supposed to receive the loan amount by now.

For the background of the issue, the Telangana government decided to take over L&T Metro Rail (Hyderabad) Ltd. (LTMRHL), the concessionaire operating Hyderabad Metro Phase-I, to expand the current 69.2-km network. The proposed Phase-II expansion covers approximately 76.4 km and includes the airport, Old City, Patancheru and Hayathnagar corridors. The state government thought that the takeover would facilitate integration with the proposed Phase-II expansion and airport connectivity projects. While the Centre insisted on an integration framework between Phase I and Phase II, there is no public evidence that it explicitly directed Telangana to take over L&T. To ensure operational ease, the Telangana government decided to take over the project from LTMRHL by acquiring L&T's equity stake ₹Rs 1,461 crore and refinancing its existing debt of about ₹13,536 crore.

In this process, refinancing the existing, costly debts emerged as the government's top priority. The state government availed the IRFC loan of ₹13,527 crore for the same purpose. State officials have said the restructuring will reduce financial pressure on the project and improve its long-term viability. The takeover also gives the government control over metro-related land parcels and development rights associated with stations, depots and commercial properties. These assets are expected to support future revenue generation and urban development initiatives.

However, the Centre, which initially seemed cooperative, has turned hostile and insisted that the IRFC loan amount be used first to meet operations and maintenance costs, and that ticket sale proceeds and other revenues be used to service the existing debt. This means the Centre has effectively turned the state government's financial plan upside down.

As the Centre has withheld the loan, Chief Minister Revanth Reddy upped his attacks on the Centre, especially Union Coal and Mines Minister G. Kishan Reddy. The CM said the IRFC loan disbursement was stalled due to the advice of Kishan Reddy. Responding to the criticism, Kishan Reddy held a press conference in New Delhi and said the state government was not ready to implement the changes suggested by the Union ministry of housing and urban affairs regarding repayment and revenue-priority arrangements. He said the state government should talk to the Union ministry of housing and urban affairs and obtain the required no-objection clearance. Kishan Reddy also said that despite Revanth Reddy meeting Union Urban Affairs Minister Manohar Lal Khattar, the state government was unwilling to accept the Centre's sought changes.

Despite Kishan Reddy sounding a bit technical, he was suggesting that the loan amount should first be used to cover O&M expenses before being used for debt servicing. According to the state government, the implications are financially damaging. The CM, on June 21, declared that Hyderabad Metro is already bearing a burden of ₹2.5 crore per day and insisted that the Centre must let the state follow its own plan.

While leaving for New Delhi on June 21, the CM challenged the Telangana BJP leaders to secure him an appointment with Railway Minister Ashwini Vaishnaw to discuss the IRFC loan disbursement issue. He also declared that if the Centre does not cooperate, the state government will go solo on the Hyderabad Metro project. However, Telangana BJP president N. Ramchander Rao responded sarcastically. Rao sought an appointment with Rahul Gandhi to discuss whether the Congress government had implemented its "six guarantees" promised during the 2023 Assembly election campaign.

The open clash and public demand indicate a likely breakdown of trust between the state and the Centre. The Centre has made its stand clear on the IRFC loan disbursement issue: if the state government does not agree to its conditions, cooperation may not be forthcoming. Though Revanth Reddy has announced his intention to chart his own path, it may not be easy for the state government to arrange funds on the scale of the IRFC loan.

The Centre's adamant stand is highly questionable. Why doesn't it allow a state government to implement its financial ideas? If the Centre had concerns about the proposed repayment structure and revenue-priority arrangements, why were these concerns not fully resolved before the loan agreement was signed on May 25? The withholding of a loan whose agreement has already been signed raises serious questions about Centre-State coordination and the timing of objections to disbursement conditions. Whatever the technical justification, the delay does little to advance Telangana's infrastructure development.