Hyderabad: Re-routing of funds from state’s institutional bodies, mortgaging government-owned properties for securing loans from banks, diversion of local body funds, matching grants under the centrally sponsored schemes and even tapping into employee PF savings — this is how the Jagan Mohan Reddy government was allegedly funding its ambitious welfare-oriented governance the past five years, often “bypassing regular budgetary processes and financial protocols.”
During the general elections, YSRCP chief and then CM Jagan had, in poll rallies across Andhra Pradesh, dwelt on his 58-month welfare track record of “having disbursed Rs 2.7 lakh crore in Direct Benefits Transfer (DBT) and Rs 1.10 lakh crore through other welfare schemes.”
Nevertheless, in a crushing defeat, from 151 MLAs, the YSRCP was reduced to 11, with the TDP-led NDA bagging 164 of the 175 constituencies in the assembly polls held in May.
“I fail to comprehend these results, our debacle, despite having committedly implemented many welfare schemes like never before. I don’t know where the love, affection of the elderly etc beneficiaries has gone,” Jagan reacted on the results day, 4 June.
Apart from the social welfare pensions for the old, physically challenged and other needy, the YSRCP government was handing monetary aid under schemes such as Amma Vodi, YSR Aasara and YSR Cheyutha to benefit several sections like the poor mothers, financially disadvantaged women.
However, with no substantial growth, wealth generation to dip into, Jagan, according to the Chandrababu Naidu government and experts, laid his hands on various funds in every conceivable manner to meet the expenditure.
“In fact, increasingly higher proportions of borrowings were used for revenue expenditure, with no revenue streams generated to repay the debt, making the state further dependent on borrowings to repay the past loans. Lack of capital expenditure has affected the physical capital formation with a cascading impact on economic growth in the long run,” said the TDP government’s white paper on finances, a full version of which was accessed by ThePrint.
The paper says Jagan’s lopsided policies since 2019 — “gross neglect of capital expenditure, infrastructure like Polavaram, Amaravati, roads, and an anti-industrial policy (227 land allottees withdrawn, industries relocated to other states)” — resulted in a Rs 6.94 lakh crore loss in GSDP.
Under Jagan’s rule, the per capita income growth went down from 13.2 percent to 9.5 percent while per capita debt increased from Rs 74,790 to Rs.1,44,336. The white paper pegs the total revenue loss at Rs 76,195 crore.
CM Naidu made a PowerPoint presentation on “the dire situation of AP finances” in the assembly recently, based on the white paper.
The paper says that the Jagan government established the Andhra Pradesh State Financial Services (APSFS) as a non-banking financial company (NBFC) and the Andhra Pradesh State Development Corporation (APSDC) as another corporation to divert funds towards government expenditure, bypassing regular budgetary processes and financial protocols.
The fixed deposits and other funds of 33 different organisations, societies, and companies like AP Maritime Board, Streenidhi Credit Cooperative Federation Limited, NTR University of Health Sciences, etc. were deposited with APSFS, accumulating a total of Rs.4,738 crore. These inter-corporate deposits received by APSFS was Rs 3,669 crore in 2021-22, Rs 514.31 crore in 2022-23, Rs 553 crore in 2023-24, and Rs 1.50 crore in 2024-25.
The contribution from AP Maritime Board alone was Rs 1,200 crore; Streenidhi Credit Cooperative Federation Limited, which provides livelihood finance to SHG women, Rs 750 crore, AP Mineral Development Corporation Limited Rs 555 crore, NTR University of Health Sciences Rs 400 crore, Krishnapatnam Industrial City Development Limited Rs 300 crore, AP Building & Other Construction Workers Welfare Board Rs 240 crore, AP Board of Intermediate Education Rs 190 crore, and AP Industrial Development Corporation Limited Rs 145 crore, AP General Insurance Corporation Limited Rs 105 crore, and AP Pollution Control Board Rs 100 crore.
“This practice led to a significant reduction in the funds available for the intended work of these institutions, thereby weakening them. Further, the funds deposited with APSFS were loaned to APSDC. All the deposited funds and loans raised by APSFS were then utilised for government expenditure, violating best practices in financial management,” the paper says.
Apart from loans from APSFS, the APSDC borrowed Rs 23,200 crore as long-term loans from a consortium of banks. The borrowed money was also used allegedly to finance government expenditure i.e., welfare.
“In order to repay the loans of APSDC, the government levied the additional retail excise tax (ARET) as a fixed component at flat rate per bottle on the issue price of liquor sold by the AP State Beverages Corporation Limited (APSBCL) from revenues of 10 APSBCL depots. The ARET revenue was escrowed for the repayment of loans taken by APSDC. This resulted in a total of Rs 14,275 crore being escrowed for APSDC loan repayment,” the paper says
Officials in the finance department, now functioning under Naidu, say the mismanagement extended to rerouting of funds from the state exchequer to the APSBCL.
“By reducing VAT rate and diverting a major share to APSBCL as a special margin, the government incurred a revenue loss of Rs 20,676 crore. APSBCL, in turn, showed this diverted revenue as their own and issued bonds based on it,” according to the white paper.
Moreover, it says that state-owned power utilities such as AP GENCO, AP TRANSCO, DISCOMs invested their pension and provident fund amounts in APSBCL bonds “at a lower interest rate.”
As on FY 2022-23, AP power utilities had outstanding government receivables (subsidy dues and department arrears) of Rs 23,572 crore.
Instead of paying these receivables and improve the institutional health, Jagan government made APGENCO and APTRANSCO invest Rs 2,134 crore and Rs 379 crore, respectively i.e., a total Rs 2,513 crore of Pension & Gratuity (P&G) Trust Funds and Provident Fund (PF) Trust Funds in the AP State Beverages Corporation Limited (APSBCL) bonds.
“The PF, etc money was invested in the beverages corporation as per the then regime directions. An 8.5 percent interest was offered and the bonds were guaranteed by the government. The funds were used for welfare,” a senior official in the energy department told ThePrint.
Moreover, the Abhaya Hastham funds of Rs 2,100 crore, comprising savings of DWCRA (a self-help initiative) women, were also encashed, the white paper adds.
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‘Higher taxes on citizens, financial strain on people’
Naidu, in the paper, grouses that funds raised through all these means were primarily used for regular government expenditure (the paper avoids use of word welfare) rather than for developmental projects or capital investments.
“Adding to these issues, APSBCL started supplying low-quality liquor and introduced unknown brands at significantly higher rates. As a result, there was an increase in black economy due to smuggling of Indian-made Foreign Liquor (IMFL) across border districts. These practices have caused irreparable damage to the excise revenue streams,” the paper says.
To compensate for “the financial mismanagement”, the Jagan government allegedly imposed higher taxes on citizens, further exacerbating the financial strain on the people.
“These measures collectively led to a total destruction of state finances, impacting the economic well-being of Andhra Pradesh. For instance, the repayment burden of loans taken by APSDC and APSBCL to finance DBT schemes would cost Rs 61,579 crore,” the paper says.
“This is tantamount to robbing the future generations and saddling them with debt without providing the corresponding benefits of improved infrastructure or capital development.”
Desperate to borrow more funds through APSDC, in addition to escrowing of ARET revenues, Jagan went on to mortgage government properties with a valuation of Rs 1,941 crore as security to lenders, the paper says listing 13 mortgaged properties including a polytechnic college, ITI, police quarters, offices of sericulture, a tehsildar in Vizag.
Moreover, the government has not transferred Rs 1,453 crore received in March from the central government to local bodies.
“Further, Rs 1,689 crore had accumulated in PD accounts of local bodies in the last five years. Thus, the government accumulated Rs 3,142 crore as liabilities to the local bodies. In addition, the AP DISCOMs were directly paid Rs 2,166 crore from local bodies’ funds towards pending electricity charges,” the paper says.
“The Jagan government was ill-advised, to say the least,” said a member of the state finance commission that recommends funds for local bodies.
According to Naidu, from 2019 when he vacated the CM’s chair, the Jagan government was always short of financial resources even to meet the essential expenditure.
“The untied revenue comprising state’s own revenue and tax devolutions were much lower than the essential expenditure requirement for salaries, pensions, debt servicing, welfare pensions, power subsidy, PDS subsidy, Arogyashree, Mid-day Meal scheme, anganwadi, and administrative expenditure. The gap between untied revenue and essential expenditure increased from Rs 32,891 crore in 2019-20 to Rs 59,995 crore in 2023-24. The previous government did not show any concern for the widening gap and pushed the state into a fiscal crisis,” the CM says in the paper, accusing his predecessor of “spending beyond means.”
As on 31 March 2019, the government debt was Rs 3,75,295 crore. By 12 June 2024, the debt burden and liabilities “reached an appalling level” of Rs. 9,74,556 crore. “The misadventures of the previous government have left unpaid dues to vendors and schemes to the tune of Rs 1,13,244 crore as reported by departments,” Naidu had stated in the House.
In the end, the Naidu government says, the much-hyped DBT programs of YSRCP government, purported to increase people’s wealth failed to produce desirous results while creating a logjam in the economy
“DBT expenditure led to higher public debt, burdening the future generations with repayment, and creating intergenerational inequity. The increase in taxes and inflation also added pressure on household incomes. The circular nature of government liabilities and circuitous manner of funding DBT schemes, not only had a deleterious impact on state finances, but also a cascading effect which has spread to different sectors, creating a logjam in the economy.
“While the government unabatedly continued revenue expenditure and borrowings, it did not have money to pay the piling bills, dues of DISCOMS, employees, etc. Misplaced priorities of the previous government have led to multiple complications, snowballing the financial crisis into an economic breakdown of the economy.”
I.Y.R.Krishna Rao, a retired IAS who had served as the AP chief secretary from 2014 to 2016 and now assocaited with BJP, says Jagan is fortunate to have lost the polls. “With no substantial revenue generation and the mounting financial mess, Jagan, if elected again, would have been forced to wind up or halt some of his much-touted welfare schemes, thereby losing his face.”
A former bureaucrat adds, “As his support was critical especially in the Rajya Sabha for passage of bills etc, the BJP led government at the centre, the last five years, turned a blind eye to Jagan’s financial indiscipline allowing him keep his vote bank happy.” .
Experts say some governments tend to make use of some “grey-areas”, the not so well defined aspects in the system to mobilise funds for their requirements.
“Though not illegal, the off-budget borrowings Jagan resorted to are not good for the economy. He seemed to have wanted to avoid the legislative scrutiny, as such funds are not accounted for in budget documents while also trying to show the fiscal deficit under limits,” says Ch Shankar Rao, associate professor in economics, Central University of Tamil Nadu.
‘Naidu did it too’
Former finance minister Buggana Rajendranath said there was no financial impropriety in resource mobilisation adopted by their government and that Naidu too had resorted to such practices during his tenure earlier.
“All the borrowings, including off-budget, were following the FRBM Act. And there is no secrecy as all the institutions like power utilities undergo regular audits. Even APSDC was formed, by enacting a legislation, to fund four welfare schemes Amma-vodi, Rythu Bharosa, Aasara and Cheyutha, providing livelihood, income generating opportunities to the poor,” Buggana told ThePrint.
The YSRCP leader said, in the concluding months of the earlier TDP government, “Naidu took about Rs 5,000 crore from the AP Civil Supplies Corporation to fund his Pasupu-Kunkuma scheme handing Rs 10,000 per women in SHGs just ahead of the 2019 polls.”
“How can it be right when you do it and wrong when we do the same? Moreover, we adopted some ways for funds as the state revenues were severely hit by Covid-19 pandemic for two years. Everything we did was in public notice and for public welfare,” he argued.
(Edited by Tony Rai)
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