Fiscal deficit AP sees spree of populist schemes

Andhra Pradesh is facing a peculiar situation regarding debt and liabilities. The residuary State is left with a lower revenue base but much higher commitments, resulting in the persistence of revenue deficit from 2014-15 onwards, according to recently released White Paper on State finances and economic growth details. But, the Andhra Pradesh Chief Minister N Chandrababu Naidu with an eye on forthcoming elections is announcing mega sops to the people under the conditions of State’s poor financial situation.

The paper has explicitly pointed out that the provisions of the Andhra Pradesh Reorganisation Act has severely affected unscientific and unjust bifurcation of undivided Andhra Pradesh, as well as the unwillingness of the Central government to implement the special Category Status, that has left the State of Andhra Pradesh with a revenue deficit of Rs 16,078 crore in 2014-15.Actually, the 14th Finance Commission has recommended the revenue deficit grant to 11 States including Andhra Pradesh. 

Out of the total amount of Rs 1,91,824 crore, Andhra Pradesh has received Rs 22,112 crore (11.53 %). But the actual revenue deficit is substantially higher than that projected by the 14th FC. In fact, the revenue deficit during the year 2014-15 was Rs 16,078.76 crore (excluding the RD grant of Rs 2,303 crore). However, the revenue gap in the subsequent years was on the same lines but the government of India is giving lower amounts as revenue deficit grants. These gaps, has created a financial stress on the State finances, noted the White Paper.

The paper argues that during the last four years, Andhra Pradesh has emerged as the best economic performer by registering an average growth of 10.52% (at constant prices). Whereas all India is 7.3% and Telangana is 9.7%.At the time of bifurcation, the population was divided in the ratio of 58.32:41.68 between AP and Telangana, but the GSDP contribution was in the ratio of 50.7:49.3. But, the gap between the two economies was only Rs 12,692 crore (1.4%). 

Because of the consistent performance of AP with an average growth rate of 14.72% at current prices during last four years, the GSDP contribution in 2017-18 is in the ratio of 52.3:47.7, with a gap of Rs 71,216 crore (4.6%).The paper also argues that 46% of the estimated revenue was given to Andhra Pradesh against a population of 58%. 

Moreover the 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  Rs 3,820 crore to the State of Andhra Pradesh.

The paper states that the State of Andhra Pradesh lost its capital city, institutions centres and service sector hubs that was estimated to generate about Rs 60,000 crore of revenue, while inheriting the drought-prone and cyclone-hit areas.The State claims that at the time of the State’s bifurcation, the government of India acknowledged that the fiscal, economic and social conditions of residuary State of Andhra Pradesh will be adversely affected and the support lent to the State by the government of India was Rs 14,256.50 crore, out of the requested amount of Rs 80,365.76 crore in the last four and half years was abysmal.

The economy of Andhra Pradesh is predominantly agrarian, and 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. This also points to the loss of manufacturing and service sector areas due to unscientific bifurcation.Consequently, the impact of change in structure of the economy towards predominantly agrarian can be seen on per capita income. 

The per capita income was Rs 82,870 in 2014, compared to Telangana’s per capita income of Rs 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 debt accounts for 28.79% of the State GDP and the Finance Minister during the recent Vote-on-Account budget speech says it is forced to raise loans as no special funds are flowing from the Centre beyond the Centrally-sponsored schemes.

The Finance Minister also says that the State’s public debt has gone up to Rs 2,25,234 crore, while the market loans are a lion’s share in the debt, accounting for 60%. The outstanding debt also includes the un-apportioned amount of Rs 23,483 crore between Andhra Pradesh and Telangana.
Though the State is reeling under financial burden, 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%.

The Finance Minister states that the government had launched the Comprehensive Financial Management System; this not only improved the effectiveness of budget, expenditure and cash management, but also brought about a sea change in government transactions. Through implementation, the government has saved Rs 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 Rs 38,038 crore in 2014-15 to Rs 75,438 crore in 2018-19.

The State claims that though the State’s financial condition is fragile, it announced Rs 5,000 crore in the Budget for Annadatha Sukhibhava, an economic support scheme for farmers and doubled social security pensions and increased the unemployment allowance, increased the pay scales of employees, the wages of Anganwadi workers and village revenue assistants, and the allocation for various welfare schemes.Economists have pointed out that on one side the government of Andhra Pradesh is indulging in financial profligacy and on other side blaming the Central government for creating a virtual funds freeze.