The Hindu : Marked optimism

Online edition of India's National Newspaper
Wednesday, Feb 26, 2003

Opinion

Opinion - Editorials

Marked optimism

THE TAX-FREE BUDGET for 2003-04 presented in the Andhra Pradesh Assembly projects a higher allocation for irrigation, agriculture and rural development and is marked by optimism that the Rs. 2,131-crore revenue deficit will be covered in the coming fiscal year. The State even hopes to end the year with a surplus of Rs. 33 crores through borrowings. While the budget has some positive features such as increased funding for employment generation and poverty alleviation programmes, it cannot be termed innovative notwithstanding the claims of the Finance Minister, Y. Ramakrishnudu. The budget speech has conceded that the thrust given to developmental areas was a result of the feedback received from different sectors following the release of the Annual Fiscal Framework (AFF). For the past two years, the Telugu Desam Government has adopted this approach of releasing a simple and demystified note that gives a broad idea to the public on various aspects of fiscal management of the State. Now that the budget-making exercise is over, the Government will do well to release all the feedback that its AFF received. This can provide a crucial platform to enhance the level of debates on the budget and lead to redefining the State's economic governance.

While the pre-budget exercise was novel, the budget itself seemingly lacked an innovative approach. It followed what bureaucrats call the "fund and figures" route with no indication of performance appraisal. Budgets cannot remain a simple exercise of increasing or decreasing allocations for different heads, but have to follow a democratic programme of making departments accountable for the expenditure made or revenues raised. Another aspect of the budget is the lamentation by the Government centering on the "devastating effect" of the drought on the State's economic performance. The farm sector accounts only for 30 per cent of the Gross State Domestic Product (GSDP) and a marginal decrease in agricultural output due to prolonged drought cannot be blamed for the bad fiscal situation. A more rational explanation is required as to why the drought relief schemes or water management missions had failed.

A disconcerting aspect of the budget comes out in the increasing debt burden of a State, whose leadership has been continuously charged with following the diktats of the World Bank and the IMF. The coming fiscal will be hard on Andhra Pradesh's finances as the State prepares to draw the next tranche of the World Bank Structural Adjustment loan and has to find ways to repay existing debts. The Finance Minister may have stated that no one needs to be unduly concerned about the State's mounting debt. Andhra Pradesh now has an outstanding debt of Rs. 42,492 crores, which is likely to reach Rs.57,141 crores in 2004 — which will be 31.32 per cent of the GSDP. What is worrisome is that the debt is rising so phenomenally, despite an impressive growth in the tax collections. In fact, the Government hopes to use the tax collections and the reduction in interest payments (arrived at through debt swap arrangements with the Centre) and in the salary bill to eliminate the entire revenue deficit by 2005-06. At a time when almost all avenues of rising revenue have been exhausted, the potential debt trap has to be a source of concern. The Government of India is slowly veering round to the position that any increase in repayment burden due to exchange rate fluctuations will have to be borne fully by the States. It remains to be seen if the TDP leader and Andhra Pradesh Chief Minister, N. Chandrababu Naidu, can use his political clout with the Centre to put off such a decision. The only hope lies in the State Finance Minister making real his claim that most of the borrowings will be used for more capital formation. On paper, he has backed his claim by showing an increase in capital expenditure proposals.

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