Splurging in the time of debt: Andhra Pradesh govt and its populist schemes

Andhra Pradesh’s government continues to launch populist schemes despite its poor financial situation

February 21, 2019 12:15 am | Updated 12:15 am IST

Chief Minister N. Chandrababu Naidu.

Chief Minister N. Chandrababu Naidu.

It is puzzling that Andhra Pradesh Chief Minister N. Chandrababu Naidu is busy announcing a spree of sops, given the State’s poor financial situation. A recently released White Paper on State finances and economic growth details how the unscientific and unjust bifurcation of undivided Andhra Pradesh, as well as the unwillingness of the Central government to implement several provisions of the Andhra Pradesh Reorganisation Act, left Andhra Pradesh with a revenue deficit of ₹16,078 crore in 2014-15.

Several problems

The paper argues that 46% of the estimated revenue was granted to Andhra Pradesh against a population of 58%; assets were allocated on location basis (most locations were in Hyderabad and hence left behind), while debts and liabilities were divided on the basis of population; the pension liability of the combined State was divided on the basis of population; power allocation was done on the basis of consumption; and refund of taxes, a liability, was allocated on the basis of population, whereas deferred tax collections, an asset, were given on the basis of location, causing a loss of ₹3,820 crore.

Further, the State lost Hyderabad, that in 2014 was estimated to generate about ₹60,000 crore of revenue, besides the manufacturing and service sector hubs. It inherited drought and cyclone-prone areas. Though the Central government had acknowledged that the fiscal, economic and social conditions of Andhra Pradesh would be adversely affected by bifurcation, the support lent to the State in the last four and half years has been abysmal, the State claims.

Andhra Pradesh’s economy continues to be predominantly agrarian. This is evident from the fact that the contribution of the agriculture sector, which was 23% in undivided Andhra Pradesh, shot up to 30.2% at the time of bifurcation in 2014, and to 34.4% in 2017-18. Consequently, the per capita income was ₹82,870 in 2014, compared to Telangana’s per capita income of ₹1,12,162. Telangana is powered by the industry and services sector. The per capita income of Andhra Pradesh is the lowest among the five southern States.

The Socio Economic Survey of 2017-18 says the State’s public debt has gone up to ₹2,25,234 crore. Market loans are a lion’s share in the debt, accounting for 60%. The outstanding debt includes the un-apportioned amount of ₹23,483 crore between Andhra Pradesh and Telangana.

The debt accounts for 28.79% of the State GDP and the government says it is forced to raise loans as no special funds are flowing from the Centre beyond the Centrally Sponsored Schemes.

Dealing with the financial crisis

Yet the government insists that it has “converted the crisis into an opportunity”. Despite structural challenges, the Budget boasts that the State is counted among the best economic performers with an average growth of 10.66% compared to the all-India growth rate of 7.3% (June 2014-December 2018).

How is the State overcoming the problems of a low tax base, deficit rainfall, an “uncooperative” Central government, and the hurdles mounted by bifurcation and a predominantly agriculture economy? Government officials say the State is not only controlling revenue expenditure by cutting administrative costs, plugging revenue leakages, minimising transaction costs and rationalising the tax structure, but also using more technology across the board.

Presenting the vote-on-budget in the Andhra Pradesh Assembly, Finance Minister Y. Ramakrishnudu said the government had successfully launched the the Comprehensive Financial Management System, which is in operation now. This, he said, not only improved “effectiveness of budget, expenditure and cash management”, but also brought about a sea change in government transactions. The government, he said, saved ₹2,585 crore through Aadhaar seeding in the Public Distribution System by using technology to plug leakages. And it has managed to increase tax revenue from ₹38,038 crore in 2014-15 to ₹75,438 crore in 2018-19.

Although it claims to have done well in managing the available resources, the government seems unable to resist the temptation to launch more populist schemes in total disregard for the State’s fragile financial condition. After spending over ₹22,000 crore on crop loan waivers, it announced ₹5,000 crore in the Interim Budget for Annadatha Sukhibhava, an economic support scheme for farmers; doubled social security pensions; and increased the unemployment allowance. It also increased the pay scales of employees, the wages of Anganwadi workers and village revenue assistants, and the allocation for various welfare schemes.

How can a government indulge in financial profligacy while alleging a virtual funds freeze by the Centre?

venkateshwarlu.k@thehindu.co.in

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