Is Andhra's finances crumbling or becoming better?

In sector-wise budget estimates, the state has given less priority to Arts, Science, and Sports

By Bhaskar Basava  Published on  28 March 2023 4:00 AM GMT
Andhra pradesh budget

Amaravati: The budget session of the Andhra Pradesh legislative assembly has been adjourned sine die on March 25.

In the 8-day session, 27 bills and three resolutions were passed. The budget was presented by Finance Minister for the fifth time in Amaravati on March 16 with an outlay of ₹ 2.79 lakh crores.

The 2023-24 annual budget has come after a month of union budget was presented in the parliament. Andhra Pradesh has received ₹ 41,338.02 crores which are around 4% of the shares of union taxes and duties. AP is the only non-BJP ruling state that had welcomed the union budget.

As elections are scheduled for next year, this is the last interim budget for the state government. So, the efforts were to woo voters on the welfare aspect.

The 2023-24 budget has prioritized Navaratnalu initiatives. Navaratnalu refers to nine welfare programs announced by AP CM Y.S Jagan Mohan Reddy during his Praja Sankalpa Yatra in 2019.

The government has allocated ₹ 54,228.36 crore to Navartnalu schemes (DBT). It also allocated ₹ 38,605 crore to BC, ₹ 20,005 crore to SC, ₹ 6,929 crore to the ST, ₹ 4,887 crore to Kapus, and ₹ 4,203 crore to minority welfare. But the budget only recommended ₹ 3,606 crores allocation for industry and commerce.

In sector-wise budget estimates, the state has also given less priority to Arts, Science, and Sports. It has allocated only ₹ 138 crore for Sports & Youth Services, ₹ 18.85 crore for Science Tech & Environment, and ₹ 26.34 crore for Art & Culture ₹ 26.34.

Further, the government has proposed ₹ 532 crores for a political campaign 'Gadapa Gadapaku Mana Prabhuthvam', which is almost ₹ 3.04 crore per assembly segment. 'Gadapa Gadapaku Mana Prabhutvam' is a campaign where YSRCP MLAs visit every household to explain what the YSR Congress government did and how it has kept every promise made to the people in its manifesto.

It has also been noted that there is an increase in state excise duty. The receipts in the state excise mainly come from alcohol-based items. States excise duty is the third highest source of income for AP after state GST and VAT. In 2021-22, the excise duty collected was ₹ 14,702 crores. In 2022-23, it was ₹ 16,167 crores. However, the state government is expecting to collect ₹ 18,000 crore for 2023-24. This means the government is expecting 1,833 crores higher than the previous year which is contradictory to CM Jagan's alcohol ban promise by 2024.

What did CAG say about AP govt fiscal management?

The CAG report was tabled in the state assembly on Friday. The CAG said the state government receipts for 2021-22 were overstated to an extent of ₹ 319.02 crores due to the misclassification of reduction of revenue expenditure as revenue receipts. It also quoted those pending payments towards irrigation projects and water supply schemes to the end of the year 2021-22 had not been disclosed in the budget documents.

It further said during 2021-22 the AP government had lapsed an unspent amount of ₹ 26,380 crore to the Consolidated Fund of the State. It has also lapsed the FC recommended health sector grants (₹ 488.15 crore) given by GoI. As against the GoI guidelines, the State Government had lapsed the unutilized funds of ₹ 6,356 crore to the Consolidated Fund of the State as a reduction of expenditure.

An analysis of income

Revenue receipts (excluding borrowings) are expected to reach ₹ 2,06,224 crore in 2023-24, a 17% increase over the revised estimates for 2022-23. Notwithstanding previous experiences, the government has increased its estimates for revenue collections. In 2022-2023, revenue is predicted to be ₹ 1,91,225 crores, but updated projections restrict it to ₹ 1,76,448 crores, resulting in revenue that is ₹ 15,000 crores less than planned. This is the same in 2021-22 as well, the government had estimated revenue of ₹ 1,77,196.48 crore, however, it was lowered to ₹ 1,50,552.49 crore, resulting in ₹ 27,000 crores shortage.

An analysis of expenditure

Revenue expenditure (excluding debt payments, capital outlay, and state loans) is anticipated to be ₹ 2,28,541 crores in 2023-24, an increase of 11% above revised estimates for 2022-23. Also, the revenue spending has been far lower than the planned projections. It could also be said that the government is lapsing some of the Finance Commission's recommended funds to cut off the expenditure which is against the GOI guidelines. The overall revenue spending for 2022-2023 is anticipated to be ₹ 2,08,261 crores, however, updated projections have reduced it to ₹ 2,05,556 crores. A similar pattern had previously been followed in 2021-22 as well, where revenue expenditure was predicted at ₹ 1,82,196 crores but spent only ₹ 1,59,163 crores.

Opposition calls 'AP lacks in development': Is it true?

Ten years after bifurcation, the state has still not been able to construct a capital city. With YSRCP fighting for three capitals and its thrust to drive in the Industrial and IT sectors has not been reflected in the budget. In the 2023-24 budget, the capital expenditure proposed is at ₹ 31,061 crores, which is only 11% of the total budget estimates.

In the past years as well, the allocation of capital expenditure in the overall budget has been very low. The same trend has been reflected in the current year's budget. Capital expenditure is generally spent by the state government on the creation of assets which results in wealth creation. As per 2022-23, the capital outlay was spent only ₹ 16,847 crores, which is around 45% lower than the proposed amount in the budget ₹ 30,680 crores.

An RBI paper titled 'State Finances: A Study of Budgets for 2022-23' confirmed that the AP government has reduced the Capex. "While the average capex cut vis-à-vis budget estimates for the three years from 2017-18 to 2019-20 was 21.3% (cumulatively for all states), states and UTs such as Jammu and Kashmir, Goa, Tripura, Punjab, Andhra Pradesh, and Delhi cut their budgeted capex by more than 40%," the report said.

The story of AP's debt

When the journey of AP started in 1953, it shared a debt of ₹42.8 crore. By the end of 1957, it had reached ₹110 crores. Again in 2014, when the united AP was divided into two states, the APs debt burden was ₹ 97,124 crore. With Chandra Babu from TDP coming to the power and ruling for five years (Till 2019 March) the APs debt burden went up to ₹2,58,928 crores. It means ₹1,66,928 crores were made in TDP Chandra Babu's tenure. After Jagan Mohan Reddy took over reigns of power (3 years, 11 months, and 20 days ago) the debt stands at ₹ 4,42,442 crores (as per RBI). This means under Jagan Mohan Reddy's tenure ₹ 1,83,514 crores of debt has been incurred.

Is Andhra going Sri Lanka's way?

According to the fiscal responsibility and budget management (FRBM) 2005 act, the debt of states should not exceed 20% of its GSDP. If it is more than 20%, it means that the concerned state is in a risky position.

The public finances of the states were examined in the RBI study titled 'State Finances: A Risk Analysis', which was issued in June 2022. According to it, Punjab leads the chart with 53.3% of debt against its GSDP, second by Rajasthan with 39.5%, third by Bihar with 38.6%, fourth by Kerala with 37.0%, fifth by Uttar Pradesh with 34.9%, sixth by West Bengal with 34.4%, seventh by Jharkhand with 33%. Whereas Andhra Pradesh stands at eighth place with 32.5% debt against its GSDP. And as on March 2023, Andhra Pradesh has a debt of ₹ 4,42,442 crores.

Also, as per the fiscal deficit and debt levels suggested by the 15th finance commission for states, the fiscal deficit limit (as % of GSDP) recommends: (i) 4% in 2021-22, (ii) 3.5% in 2022-23, and (iii) 3% during 2023-26.

However, the AP fiscal deficit for 2021-2022 stands at 2.08% against 4% of GSDP. It is 3.6% against 3.5% in 2022-23 and 3.8% (estimated FY 2023-2024) against 3% during 2023-26. In both recommendations, it is observed that AP has crossed the debt limits set up by the commission and an act.

But it is highly impossible that Andhra Pradesh will turn into Sri Lanka as many other states face a similar situation. But, sooner or later, AP will turn into a Sri Lanka, if the development and wealth creation is sidelined in the same way for the next few years.

In the 2021 report, the Comptroller and Auditor General (CAG) stated that Andhra used around 65% to 81% of borrowed funds for debt repayment during FY 2016-17 and FY 2020-21, showing that it was borrowing mostly to restructure prior debts rather than for infrastructure building.

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