The fiscal first steps

The Comptroller and Auditor General of India (CAG) has presented to the legislature of both the States its reports for the year ending March 2015. This provides an insight into the fiscal performance of the successor states of Telangana and Andhra Pradesh.

The total outstanding liabilities of Telangana constituted 22.79 percent of the GSDP which was within the ceiling of 27.6 percent stipulated in Fiscal Responsibility and Budget Management (FRBM) Act for the year 2014-15. However, maturity profile of the debt indicates that State has to repay more than 50 percent of debt within seven years, which indicates that the State could fall into a debt trap. Still, the State continues to pursue debt induced fiscal expansion path.

On the contrary, the total liabilities of Andhra Pradesh were 32.03 percent of GSDP against 27.60 percent prescribed in FRBM Act for the year 2014-15. Still, during this fiscal, 78.94 percent of the revenue expenditure was met from the revenue receipts and the balance Rs 24,194 crore was financed from borrowed funds. The CAG report warns that the borrowed funds so utilised created liability for the future year without creating assets to generate revenues to meet this additional burden.

There has been a spurt in the government expenditure in both the States. But, the CAG report questions the quality of public expenditure in both the States. The CAG observes that capital projects in irrigation and road sectors in Telangana were not completed in time resulting in non achievement of the envisaged benefits.

Similarly, the CAG indicts Andhra Pradesh that capital works projects in irrigation and road sectors continued to languish and delays in their completion led to cost escalation on these projects. The investment blocked in such incomplete works/ projects as on March, 2015 was Rs 32,646 crore.

Although, the governments in both the States accorded adequate fiscal priority to development expenditure, they did not ensure that the allocated funds were released fully for the intended purposes. For instance, Telangana state outlay on education (11.57 percent) in particular, was less than that of the general category States (16.23 percent). Similarly, the expenditure on education and health in Andhra Pradesh is also comparatively lower than the average of general category States.

Both the States have to improve the quality of expenditure. Enhancing the human development levels requires both the States to step up the expenditure on key social services like education and health. Development expenditure as a proportion of aggregate expenditure has been higher in Telangana compared to general category States average during this fiscal. Expenditure on social sector as a proportion of aggregate expenditure was lower than the general category States average. The share of capital expenditure was comparable.

Similarly in Andhra Pradesh too, the development expenditure was higher. While the expenditure on social sector as proportion of aggregate spending was comparable. The share of capital expenditure was much lower in the State. Both the States have to increase their public expenditure on social sectors, especially education and health. Andhra Pradesh has to improve its capital expenditure. Hope that the CAG’s incisive reports are not buried under the dust and din of political ruckus.