Ignoring hard facts will be bitter for economy

Ignoring hard facts will be bitter for economy

THE HANS INDIA |   Mar 19,2017 , 02:47 AM IST

Denying the grant of Special Status to the state of Andhra Pradesh and replacing it with huge central assistance (dubbed as Special Package dubiously) may not really help the state in its speedy development

(File Image)
(File Image)

The Budget for 2017-18 presented by the Finance Minister to the AP Assembly is very high on hopes in terms of inflating the budget size to a whopping amount of Rs 1,56,999 crore, almost equivalent to that of the combined state of Andhra Pradesh. 

When the present government presented the Budget for Rs 1,11,824 crore for 2014-15, many raised their eye-brows and felt that it was all absurd. Now the size of the present Budget is almost 50 per cent higher than their first Budget. It is to be hoped that the potential of the new state of Andhra Pradesh has gone up tremendously just over a period of three years since 2014-15 and hence there could be no cause for worry about the resources for development of the state. 

Eye-popping facts

  • Govt inflates budget to Rs 1.56 lakh cr. It sparks cause for worry about the resources 
  • Very high expectations on transfer of funds from Centre (non-tax revenue shown at Rs 42,509 cr)
  • Will Centre will bear additional higher expenditure on Polavaram?
  • Fall in revenue deficit from Rs 7,300 cr(BE of 2015-16) to just Rs 416 cr
  • No linear relation between the revenue and the fiscal deficits
The question is: where has all this money gone or is going? In the first Budget, of the Rs 1,11,824 crore, only Rs 26,673 crore (23.85 per cent) was earmarked for development as plan outlay. The government claimed that they could not do much more than this. The reason quoted then was that the successor state had inherited a huge revenue deficit of Rs 6,064 crore and fiscal deficit of Rs 26,673 crore. In addition, it also got the transferred public debt of Rs 1,06,000 crore as legacy.

While this being the situation, the state could overcome all these difficulties and improve upon the revenue generating capacity to be able to fix the Budget size at Rs 1.57 lakh crore ultimately. The sources of income are identified to be Rs 53,717 crore from taxes, Rs 29,139 crore as the share of the state central taxes and Rs 42,509 crore as non-tax revenue. 

It is in this last component (Rs 42,509 crore as non-tax revenue) that there is high expectation about the transfer of funds from the Centre towards outright grants and under the centrally sponsored projects and public debt. As a matter of fact, the central assistance to state development plans was projected to be only Rs 8,500 crore in the Revised Estimates of 2015-16. 

Even in the present context, the transfers from Centre are not going to be encouraging, in the light of gross reduction in the number of CSS programmes, lukewarm response for the construction of new capital or any other project.

Denying the grant of Special Status to the state of Andhra Pradesh and replacing it with huge central assistance (dubbed as Special Package dubiously) may not really help the state in its speedy development. 

A solace in the recent past is the declaration of the Centre of the recognition of Polavaram Project as a central project by a decision of the Cabinet. But the tricky issue remains as to the cost of the project. The Centre is very clear as to the estimated expenditure (as projected in 2011 prices) of about Rs 14,000 crore only. But in the present prices, the entire expenditure may shoot up to about 30,000 crore. Who would bear the remaining is the issue. 

Furthermore, the allocations earmarked by the Centre in its successive Budgets are very meager at Rs 100 crore a year. One has to understand the jinx in this attempt. Whereas the state government requesting the Centre to accept it as the ‘Central Project’ is going on allocating money, as it earmarked Rs 3,380 crore in 2016-17 and Rs 6,889 crore in 2017-18. It remains to be seen to what extent the money already spent by the state would get reimbursed.

Further, the economists and analysts are at a loss to understand the sudden plummeting of revenue deficit of Rs 7,300 crore (Budget Estimates of 2015-16) to just Rs.416 crore; while the fiscal deficit being at the same level of Rs 23,054 crore in 2017-18. 

It is usual in the discipline of Economics to recognise an amount of linear relation between the revenue and the fiscal deficits. But our Budget exercise should remain an eye-opener even for economists and a model to be taken to the classrooms. 

Besides, the anxiety of the state government in putting up a demand on the Centre to hike the cap on the public debt to be raised from the market from the present 3 per cent of GSDP to anything above 5 or 6 per cent is the clear indication of the jittery in the fiscal discipline of the State. One argument put forth by the state is that it is not for consumption; but for investment only. 

As per the recent reports, the total debt burden of the state is presently estimated to be around Rs 2.16 lakh crore. This is said to constitute about 28.11per cent of the state GDP. The servicing of this size of the debt will surely turn out to be burdensome. 

Even in the Budget for 2017-18, the interest payments were put at Rs 15,471.52 crore, which is 9.85 per cent of the total budget or about 16.8 per cent of the state’s tax and non-tax revenue. 

Therefore, ignoring the hard facts and inflating the budgets only put the state in a financial quandary; finally ending up with dismal failure.  

By: Prof K Viyyanna Rao
(Writer is Former Vice-Chancellor, Acharya Nagarjuna University)