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‘Rising debt, low revenue’ — delay in salaries of govt employees highlights Andhra’s fiscal trouble

RBI while analysing financial status of states last year termed Andhra as one of top 10 high-debt states. According to CAG it used 65-81% borrowings for debt repayment between 2016-17 & 2020-21.

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Hyderabad: For nearly four months now, delayed dispersal of his salary has forced Srikanth Raju (43), an employee of the Andhra Pradesh government, to take out private loans to pay off his home loan EMIs. Raju, who works with the state Women and Child Welfare department, told ThePrint, “Bank’s due date for payment of my home loan installment is the fifth of every month and I have been getting my salary on the seventh, or later. I cannot default on the EMI as it will hurt my Cibil score (credit history).”

His 70-year-old mother, who depends on his late father’s pension for her expenses, has also been receiving it late, claimed Raju. “She needs money for medicines, but sometimes the pension comes on the 20th or so. So, I have to give her some money at the beginning of the month,” he said, adding that delays in the dispersal of his salary have been consistent for the past four months.

Askara Rao, general secretary of the Andhra Pradesh Government Employees Association claimed delays in dispersal of salaries started even earlier, about six months or so back.

In what raises serious questions over Andhra Pradesh’s fiscal health, state government employees — both current and former — have sought the YSR Congress Party (YSRCP) government’s help for timely disbursal of their salaries.

Last week, members of the Andhra Pradesh Government Employees Association met Governor Biswa Bhusan Harichandan and presented him with a memorandum. Accessed by ThePrint, it sought his intervention to correct the “autocratic and exploitative” attitude of the Chief Minister Y.S. Jagan Mohan Reddy-led government vis-à-vis the “inordinate” delay in dispersal of salaries and pensions of government employees.

Special chief secretary (finance) in the Andhra Pradesh government, Shamsher Singh Rawat, said in a press statement last week that this was not the norm and only on rare occasions has there been a slight delay in dispersal of salaries. In most cases, 90-95 per cent of the salaries are released before the fifth of every month, he maintained.

ThePrint reached state Finance minister Buggana Rajendranath’s office on text messages for comment, but did not receive a response till the time of publication of this report. The article will be updated when a response is received.

Government employees meanwhile claimed even dispersal of salaries on the fifth was a delay and referred to an existing government order which they said calls for dispersal of salaries by the first of every month.

Besides emphasising the untimely dispersal of salaries and pensions, the memorandum to the Governor also pointed out lapses in payment of other financial benefits, such as arrears of allowances. Last year, a mysterious deduction of a certain amount from employees’ provident fund savings had prompted a response from the state government that said the deduction was the result of a “technical glitch” that will be ‘rectified’ soon.

Meanwhile, retired civil servants claimed it was “evident that the state does not have enough” funds. “For the past few months, I have been getting my pension only after the 12th or so. I am aware that IAS officers in service in the state have been getting salaries after the 10th of the month,” said a retired IAS officer, who spoke to ThePrint on condition of anonymity.

Three serving IAS officers who did not wish to be named also confirmed to ThePrint that there have been delays in the dispersal of their salaries.

Andhra Pradesh is expected to present its budget sometime in March.

Also Read: ‘Whose history?’: In Telangana and Andhra Pradesh, the archives are fighting

Where Andhra is going wrong

The state government’s debts have been ballooning for the past few years. Andhra Pradesh’s debt in 2014, at the time of bifurcation and creation of Telangana, was 97,000 crore rupees. In five years, till 2019, under the former Chandrababu Naidu-led government, it jumped to 2.59 lakh crore rupees. The latest estimates show that it has almost doubled in the past four years.

Economic slowdown, even before the pandemic, was one reason for the state’s mounting debt and lower revenues. And the termination of Goods and Services Tax (GST) compensation to states in June last year will make matters worse, said experts. Another factor contributing to the slowdown is the central Ujwal DISCOM Assurance Yojana (UDAY) scheme, which allows states that own power distribution companies to take over 75 per cent of those companies’ debt accrued till September 2015, and pay the lenders back by selling bonds.

The state’s net debt for FY 2022-23 was estimated at Rs 4.85 lakh crore, up from Rs 3.98 lakh crore in FY 2021-22.

Terming Andhra Pradesh as one of the states with the highest debt burden, the Reserve Bank of India (RBI) had flagged the state’s high debt-to-GSDP (Gross State Domestic Product) ratio — an indicator of a state’s capability to fund its expenditure without depending further on debt. A lower debt-to-GSDP ratio indicates better sustainability.

Where did Andhra Pradesh fail to balance its finances? Economic and political analyst D. Papa Rao pointed out that the state was already in a revenue deficit situation when Andhra Pradesh was bifurcated in 2014.

“Both (Chandrababu) Naidu and Jagan do not have a development model vision for the state. When Andhra was bifurcated, the state was already in revenue deficit condition. Naidu’s large share of focus was on the capital which was just one part of the state and did not materialise, there was no policy outlook. Then when Jagan came in, his focus was welfare schemes which will help him politically in the next election,” he told ThePrint.

An analysys the state’s finances, based on budget sheets, show that from FY 2021-22 show Andhra Pradesh’s expenditure exceeds the revenue it earns, and the additional expenditure could have been funded through debt and borrowings.

Simply put, a state’s budget is split between its revenue expenditure and capital expenditure (CapEx). While revenue expenditure covers salaries, interest payments, and allocation for welfare schemes, capital expenditure is the money spent on infrastructure projects, education, health sector, agricultural projects.

While revenue expenditure yields no returns to the government, focus on capital expenditure is expected to yield returns, albeit in the long run.

For instance, in FY 2021-22 (considering estimates available in last year’s budget), revenue (estimate) was Rs 1,54,273 crore, but the revenue expenditure (estimate) was Rs 1,73,818 crore — meaning the state would have spent Rs 19,545 crore more than what it earned, similar to the state of its fiscal health the previous year (Fy 2020-21). In such a situation, any state has to resort to loans or debt to fund the additional expenditure.

Moreover, Andhra Pradesh allotted Rs 18,529 crore as capital expenditure, to be funded through borrowings or loans in FY 2021-22. Another Rs 48,083.92 crore — about 30.5 per cent of revenue — was set aside for welfare schemes and freebies in that same fiscal year, similar to the allocation for welfare schemes in the state’s annual budget for FY 2022-23.

In FY 2021-22, interest payments and pensions accounted for about 20 per cent of revenue expenditure. Though it is counted as revenue expenditure, the state did not disclose the amount spent on salaries that year.

In contrast, the state spent about 31 per cent of its revenue on interest payments and pensions, and another 9.9 per cent on salaries in FY 2020-21.

In the FY 2022-23 budget estimates, Andhra government pegged its revenue at Rs 1,91,225 crore and expenditure at Rs 2,08,261 crore — extra spending of Rs 17,361 crore, besides another additional spending of Rs 30,680 crore on capital expenditure.

Fiscal deficit, a measure which indicates the difference between the income and expenditure, has been on the uptick in the state for the past four years. RBI, in one of its reports, said Andhra’s fiscal deficit exceeded the limit in set by the 15th Finance Commission in 2020-2021. The situation in current FY is expected to be a bit better, comparatively.

An analysis of the state’s debt over the years shows that an average 27 per cent of the debt raised in a particular year is being spent on interest rates alone. And with every passing year, the debt is rising, as are the interest rates, but with very minimal wealth creation in the state, which can be measured in terms of CapEx.

Why Andhra Pradesh has fallen short of generating adequate revenue is another key question stemming from where things stand.

Andhra going the ‘Sri Lanka’ way?

Experts pointed out that the striking imbalance between Andhra Pradesh’s revenue expenditure and CapEx is a matter of concern.

“Andhra Pradesh financially is in a tough situation. Lot of importance is being given to welfare schemes,” Krishna Reddy Chittedi, assistant professor at the School of Economics, University of Hyderabad, told ThePrint.

“Ideally, 30-40 per cent (of revenue) should be spent on CapEx (which can yield returns for the government) and if that can be maintained, a state can be considered healthy. Rest of it can be on revenue expenditure. But if you look at the figures, that’s not the case.”

He added, how can the state clear its debt easily when it is “evident” that it is largely dependent on borrowings and loans to sustain its expenditure.

“It’s like fresh loans are being raised and part of it is being used to make interest payments. Revenue-generating sources are minimal and so is focus on wealth creation. how long can the state depend on loans when it is unable to pay them back,” he remarked.

The opposition has in the past criticised the YSRCP government by suggesting that Andhra Pradesh might head the ‘Sri Lanka way’ in a few years if this fiscal crisis continued.

The RBI, following the Sri Lankan financial crisis, had last year analysed states’ financial status and termed Andhra Pradesh as one of the top 10 high-debt states in the country.

Stressing on the need for income and wealth creation, the Comptroller and Auditor General (CAG) said in a 2021 report that Andhra used approximately 65 to 81 per cent of borrowed funds for repayment of debt during FY 2016-17 and FY 2020-21, indicating that it was borrowing primarily to restructure previous debts, rather than for infrastructure creation.

The report also said that the state had exceeded its own Fiscal Responsibility and Budget Management (FRBM) Act targets.

“Borrowed funds should ideally be used to fund capital creation and developmental activities. Using borrowed funds for meeting current consumption and repayment of interest on outstanding debt is not sustainable,” the CAG had noted.

There are at least twenty welfare schemes in Andhra Pradesh which can be classified as direct cash transfer or indirect monetary benefit schemes. As of May 2021, nearly two years after coming to power in the state, the YSRCP government had reportedly spent about Rs 1.31 lakh crore on direct and indirect welfare schemes.

Among these are ‘Amma Vodi’ — annual cash benefit to mothers for sending children to government schools — and the ‘YSR Cheyutha’ — financial assistance of Rs 75,000 for women aged 45-60 years hailing from SC, ST, BC, and minority communities, to improve their livelihood.

Another such welfare scheme is the ‘YSR Vahana Mithra’, which provides financial assistance of Rs 10,000 per annum to self-owned auto/taxi drivers to meet expenses incurred on insurance, fitness certificate, repairs, and other requirements. There are similar schemes for weavers, among others.

“We cannot generalise all welfare schemes as freebies, nor are we against the idea of welfare. But, are the welfare schemes helping in eradicating poverty, is the government seeing a reduction in PDS (public distribution system) card holders, are they really making families financially independent is the question. At this point it looks like people are dependent on the government for money. State is not creating any employment in the state or skill development which can benefit it in the long run,” claimed Reddy.

Telugu Desam Party (TDP) leader and former state finance minister Yanamala Ramakrishnudu had alleged last year that the growth rate of Andhra when TDP handed it over to YSRCP (10.2 per cent) is now at minus 2 per cent. Citing previous CAG reports, he had also alleged that there has been misappropriation of funds in the state, claiming that nearly Rs 1,00,000 crore worth of expenditure is unaccounted for in Andhra Pradesh.

The RBI in a report earlier this month said states’ fiscal deficit could narrow  in FY 2022-2023, and the debt burden may ease as a result of broad economic recovery and higher revenues.

(Edited by Amrtansh Arora)

Also Read: NTR vs YSR & Naidu factor: How Jagan’s plan to rename university reopened old wounds, feuds


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