Special financial aid to AP a damp squib?

The Central government’s commitments to Andhra Pradesh emanate from four basic documents, ie., the provisions of the Andhra Pradesh Reorganisation Act, 2014, the report of the Fourteenth Finance Commission, the statement of the then Prime Minister before the Parliament on February 20, 2014, and the Report of NITI Aayog vice-chairman on December 1, 2015 on Developmental Support to the Successor State of Andhra Pradesh under the Andhra Pradesh Reorganisation Act 2014.

What Centre has committed

• Centre agreed to make up for additional central share the state might have received from 2015-16 to 2019-20, if the funding of Centrally Sponsored Schemes (CSS) would have been shared at the ratio of 90:10 between the Centre and the state; and
• In addition, the special assistance will be provided by way of repayment of loan and interest for externally aided projects (EAPs) signed and disbursed during 2015-16 and 2019-20 by the state

What Centre may actually do

• AP submitted EAP proposals worth Rs 35,000 cr, but Centre considered only Rs 7,000 cr as EAP
• Centre to treat sharing of CSS as 90:10 ratios for all the schemes from 2015 onwards
• Centre owes State Rs 2,400 cr for last two years and equal amount for next two years.
• However, Cabinet note says it will use the amounts to pay loan, interest for EAPs
• But, Centre need not pay till 2022 when AP actually starts repaying loans and interest for EAPs
• Since, AP bears burden of EAPs, it may not get any extension on FRBM front even
• Even Central aid for Amaravati capital is not encouraging

To fulfil the commitment, the Union Cabinet on 15th March 2017 approved of a special financial assistance for bifurcated Andhra Pradesh. This financial assistance will be provided by special dispensation in funding of Externally Aided Projects (EAPs).

Under this measure, the Centre would make up for the additional central share the state might have received from 2015-16 to 2019-20, if the funding of Centrally Sponsored Schemes (CSS) would have been shared at the ratio of 90:10 between the Centre and the state. In addition to this, the special assistance will be provided by way repayment of loan and interest for externally aided projects (EAPs) signed and disbursed during 2015-16 and 2019-20 by the state.

This support in repayment of the EAP loans will help Andhra Pradesh put its finances on firmer a footing and promote economic growth.
The Central government would provide 28 central sponsored schemes with different sharing ratio patterns between the Centre and the state and a certain percentage of the funding is borne by the state in the ratio of 50:50, 70:30, 75:25 or 90:10 and the implementation is by the state government.

Centrally Sponsored Schemes are formulated in subjects from the State List to encourage States to prioritise in areas that require more attention. Funds are routed either through consolidated fund of States and or are transferred directly to State/ District Level Autonomous Bodies/Implementing Agencies.

Usually, the Central Assistance in the form of Additional Central Assistance (ACA) is provided for various Centrally Sponsored Schemes viz., Accelerated Irrigation Benefits Programme, Rashtriya Krishi Vikas Yojana etc. But the Central government will now treat the sharing of CSS as 90:10 ratios for all the schemes from 2015 onwards.

As per procedure, the Andhra Pradesh government would get Rs 1,200 crore a year as central share; hence the Andhra Pradesh government was to get Rs 2,400 crore as arrears for 2015 and 2016 and similar amount for next two years.

On clearly analysing the cabinet note, it spells out that the Centre will not release the arrears of Rs 2,400 crore for previous two years of 2015-16 and 2016-17, Rs 2,400 crore also for next two years of 2017-18 and 2019-20, as the Centre would use this amount to repay loan and interest for external aided projects (EAP) signed between 2015-16 and 2019-20 by the state government.

As per the data, the Andhra Pradesh government sent EAP proposals worth Rs 35,000 crore to the Centre, of which the Centre considered Rs 7,000 crore as EAP in the two years. It means, the Centre would pay loan and interest payment to the EAP, without releasing the amount to the Andhra Pradesh government under centrally sponsored schemes.

Generally, the loan repayment under externally aided projects will start after seven years and in some cases, it starts after ten years. This clearly indicates that the loan taken under EAP by the Andhra Pradesh government in 2015 will have to repay the loan starting from 2022 and 2025.

Moreover, the Andhra Pradesh government does not have to repay the loans till 2019-20, as per the cabinet note. At the same time the Centre also need not repay the loan taken by the Andhra Pradesh government under externally aided projects since 2015, as the loan and interest burden will be on Andhra Pradesh only after 2022.

As a result, the Andhra Pradesh government which is anticipating Rs 1,200 crore per year under Centrally Sponsored Scheme would not get it released by the Centre. The Andhra Pradesh Fiscal Responsibility and Budget Management (FRBM) Act, 2005 provides annual targets to progressively reduce the outstanding liabilities, revenue deficit and fiscal deficit of the state government.

According to budget estimates of 2017-18, the revenue deficit for the next financial year is targeted at Rs 416 crore and fiscal deficit is targeted at Rs 23,054 crore. In 2017-18, the outstanding liabilities are expected at 28.1% of state GDP. However, the AP would not get any relaxation in the FRBM Act, to go for more borrowings, since the loan burden for externally aided projects would be laid at the nose of the state government.

Besides this, the state government planning to build a world-class infrastructure in the capital city of Amaravati is anticipating a big support from the Centre. But, that is also not encouraging.

Now the stand before the Andhra Pradesh government is that, it has to request the Centre to clear all the pending proposals under externally aided projects and release funds under Centrally Sponsored Schemes after changing the patterns including arrears, which are due to the state government on a par with other state governments and should also request Centre to pay loan and interest payment under EAP at present, which is due to the state.

By Gudipati Rajendera Kumar