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On one hand, the whole country is seeing an economic slowdown and efforts are constantly on to contain the problem by adopting effective measures and observing austerity.

However, the State of Andhra Pradesh (AP) seems to be heading towards a severe financial crisis as a slew of election concessions and mindless extravaganza is visibly affecting the public exchequer where the state faces a resource gap of Rs. 45000 crores, to fulfil its budgetary commitments for 2019-20.

Almost all the political parties occasionally, in the course of their campaign, announced such freebees, without considering the financial implications of such steps adversely impact the State’s economy. But AP seems an exception in the present context.

Meanwhile, Chief Minister Jagan’s Yuvajana Sramika Rythu Congress (YSRC) won 151 of the 175 seats in the Andhra Pradesh assembly. His priority now seems to be shore up the state’s finances.

In its ‘Election Expenditure Statement’ that the Jagan Reddy’s YSRCP filed with the Election Commission, it surfaced that it had spent Rs.85 crores alone on campaigning for the Legislative Assembly and Lok Sabha elections held early this year, while the Telugu Desam Party (TDP) spent a total of Rs 77 crores on campaigning.

The ‘Election Expenditure Statement’ filed by the YSRCP also revealed that on the date of the announcement of the election, the party had a bank balance of Rs 74,32,449. However, by the time the elections were over, the party had received a staggering Rs 221 crore (221,58,52,225) in the form of donations. YSRCP also paid Rs 37.57 crore (37,57,68,966) to political consultancy Indian Political Action Committee (I-PAC), run by Prashant Kishor, and the TDP spent Rs 49 crore going for advertisements in the media.

Coincidentally, most of the money spent on advertisements by the YSRCP i.e., Rs 24 crore (24,67,34,007), was allegedly awarded to Jagathi publications, which is managed by Jagan Mohan Reddy’s family. Even after these humongous election related expenditures, YSRCP has declared a bank balance of Rs 138 crore. When the election was completed, the TDP had a total balance of Rs 155 crore.

Further, in February this year, Chandrababu Naidu spent Rs 60 lakh merely to provide one day’s accommodation to his supporters in New Delhi as he sat on a single day’s hunger strike. Rooms in multiple hotels across the national capital were booked for the TDP loyalists and members of TDP including Hotel Surya and Hotel Royal Plaza.

Earlier there were reports that TDP chief Chandrababu Naidu had spent about 1.12 crore rupees to arrange transport for the party members from Andhra Pradesh. Such developments were clearly contrary to any measure conforming austerity and were a vulgar display of wealth.

Consequently, now Andhra Pradesh’s debts, which stood at Rs 1,30,654 crore in 2014-15, have reached a whopping Rs 2,58,928 crore by 2018-19. The YSRCP has confined itself to blaming the previous Telugu Desam Party (TDP) government of N. Chandrababu Naidu, for the current financial impasse. It is also hoping that the Centre and Andhra Pradesh’s huge diaspora will bail out the state of its current financial crisis. 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 state government claims it is forced to raise loans as no special funds are flowing from the Centre beyond the Centrally Sponsored Schemes.

Following the bifurcation of the state, and the loss of Hyderabad which was a major source of revenue, besides being a manufacturing and service sector hub, Andhra Pradesh’s economy is predominantly agrarian. The contribution of the agriculture sector, which was 23% in undivided Andhra Pradesh, went up to 30.2% at the time of bifurcation in 2014, and to 34.4% in 2017-18.

As a result, 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. Interestingly, the per capita income of Andhra Pradesh is the lowest among the five southern Ssates.

It is also pertinent to mention that in his election campaign Y.S. Jagan Mohan Reddy had promised creation of rural jobs, senior citizen pensions and free healthcare, and service debt. Now with the state’s debt spiraling over Rs 2.5 lakh crore which nearly 30 percent of Andhra Pradesh’s GDP these election welfare promises are almost impossible to enforce. This is a ground reality.

Presenting Rs 2.27 lakh crore welfare-oriented budget last month, State Finance Minister B. Rajendranath, disclosed that said the fiscal position the YSRCP government inherited has compelled it to make some very hard choices to address wealth creation and welfare programmes.

The investment climate in Andhra Pradesh has been severely dented because of the huge resource gap that the state is facing. The efforts to generate revenues are further likely to be impacted because of controversial moves like reserving 75 per cent jobs for locals in all industries, review of Power Purchase Agreements and terminating one of the contracts for the Polavaram project.

Chief Minister Jagan Mohan Reddy has been trying to invite foreign investment by justifying these controversial decisions to potential investors.

In the meantime, the cancellation of Power Purchase Agreements (PPAs) entered by previous government with producers of renewable energy, has caused consternation among investors. Jagan Reddy’s government, therefore, faces a tough task in allaying apprehensions of the industry and attracting new investments.

In an embarrassing incident that has further caused uneasiness among investors, during the roll-out of first car of Kia Motors from its plant in Anantapur district, YSRCP MP, Gorantla Madhav gave vent to his grievance on the bonnet of Seltos by writing ‘Car roll out – our youth ruled out here..sorry’. This was due to the Telugu Desam Party (TDP) claiming credit for getting the South Korean auto major’s India plant.  Jagan Reddy himself did not attend the roll-out event despite senior company officials personally meeting him and extending an invitation.

The YSRCP government has been forcibly justifying the recently enacted legislation to provide 75 per cent jobs in all industries to locals, by declaring that even in the US, the slogan is jobs for locals being a worldwide phenomenon.

In another related happening, the contract with the Navayuga Engineering Company Limited (NECL) for the development of the Polavaram irrigation project on Godavari river worth Rs 3,000, was recently terminated by YSRCP on the grounds that it was awarded by the previous TDP government.

This Rs 58,000 crore irrigation project was poised to become the lifeline of the farmers in Andhra and cancellation of contracts on flimsy grounds caused not only delay in commencing and completion but also generating anxiety among investors all round over the fate of contracts acquired. The project aims to irrigate 2.91 lakh hectares, generate 960 MW of power, and fulfil the water needs of industries and 540 villages in Andhra Pradesh.

An amount of Rs 11,210 crore has already been spent on the Polavaram project and because the Centre declared it as a national project in 2014, it reimbursed Rs 6,727 crore to the state government, according to official data.

Further adding to this series of unfortunate and unpleasant decisions by the YSRCP government, is the recent announcement that the agreement for the development of Machilipatnam Port was also being cancelled. It is reckoned said that it reserves the right to claim damages from Machilipatnam Port Private Limited, in which NECL is a lead promoter.

Meanwhile, uncertainty looms large over Amaravati, the new capital of Andhra Pradesh, in the wake of post-poll realities. There are apprehensions among farmers and investors that the capital might be moved to some other location by the YSRCP for political and economic reasons. As per the estimates of the previous TDP government, the cost of construction of a new capital was estimated at ₹51,000 crore.

As the State’s debt now stands at ₹2.57 lakh crore, it remains to be seen how the new government will mobilise funds and honour the promises made by the TDP government to farmers who gave land. With development of state capital Amaravati no longer a priority for the government and the works awardedto various companies coming to a halt, investors may be reluctant to invest.

The YSRCP has justified stalling these engineering projects on the grounds that they were sanctioned without adhering to norms or by relaxing the fiscal restructuring and budgetary management norms, resulting in a huge burden on the state exchequer.

The present government allegation is that almost all these projects, running into thousands of crores of rupees, were hurriedly sanctioned by the TDP government just days before the schedule for the Lok Sabha election were announced, with Naidu laying the foundation stones. Some economists like former Andhra Pradesh State Council of Higher Education chairman Prof K.C. Reddy have applauded the halt of all department works sanctioned prior to April 1 this year.

“In order to develop a buoyant economy, cutting back expenses on unwanted projects and schemes needs to be coupled with the plugging of leakages of taxes and other revenues. Alongside, the state should focus on non-tax revenues and possibly develop agro-based industries, tapping the strengths of the state’s resources, including its long coastline.”

In another related development, the reintroduction of the ban on the sale of all liquor with plans to limiting the sale of liquor only to five-star hotels, figures prominently on Jagan’s list of poll promises. But measures like cracking the whip and shutting the unlicensed ‘belt’ liquor vends cannot help increase state revenues but serve only as a temporary setback for the enterprising bootleggers.

Even in such dire straits the, wherein the public debt of Andhra Pradesh has reached an alarming level, YSRCP government is clueless 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. The Jagan Reddy government is clearly perceived to be indulging in financial extravaganza while claiming a near funds freeze by the Central government.

With Debt to GSDP (Gross State Domestic Product) ratio is at 30 per cent, higher than 25 per cent prescribed under the FRBM (Fiscal Responsibility and Budget Management) Act, 17 to 18 per cent of the budget goes only towards payment of interest on the principal. Since Andhra Pradesh failed to fulfil the prescribed criteria given by the Finance Commission it was not given permission to increase fiscal deficit to 3.5 per cent from the 3 per cent according to the Fiscal Responsibility and Budget Management (FRBM), preventing the state from going for higher market borrowing while other States enjoy that facility.

Additionally, bills pending from last financial year, still need to be cleared.  The limited options to raise revenues or to turn to non-treasury borrowings which has already touched Rs 1 lakh crore compounds Andhra Pradesh’s financial crisis.

The YSRCP for now finds itself between the devil and the deep blue – between fulfilling the election promises of giving out sops and distributing money under various schemes and at the same time making up for capital expenditure that the state badly needs.

(Writer is a security analyst and a freelance columnist on topical matters. The views expressed are personal)

Shantanu Mukharji
Shantanu Mukharji is a retired IPS officer, a security analyst and a former National Security Advisor to the Prime Minister of Mauritius. The views expressed are personal.

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