AP reeling under huge debt burden

The public debt in Andhra Pradesh has reached an alarming level with the total debt incurred by the State expected to cross Rs 1.7 lakh crore by the end of this financial year. The burden is increasing with every passing month in addition to the Rs 73,856 crore it inherited as its share after post–bifurcation.

The debts run up by the combined state of Andhra Pradesh were bequeathed to Telangana and Andhra Pradesh on the basis of population ratio of 58:42. So, of the Rs 1.26 lakh crore raised from the market by united AP in the last 10 years, residual Andhra Pradesh share was Rs 73,856 crore, while Telangana share was Rs 52,144 crore.

During the financial year 2015-16, the State raised Rs 6,000 crore by way of government bonds. This reflects the tight financial position of State, which is already reeling under a huge revenue deficit as a consequence of bifurcation with a huge revenue deficit. Add to this Rs 6000 crore loans raised during the year 2015-16, the State total debt burden has gone up to Rs 80,000 crore.

However, in 2014-15, the total debt increased from Rs 1.56 lakh crore. Market borrowings, which stood at Rs 78,440 crore in financial year 2014-15, went up to Rs 95,453 crore at the end of the current financial year. During the 2015-16 year, the State paid Rs 9,478 crore as interest towards its debts and the debt outstanding as percentage of the GSDP was 28.19 per cent during the current year.

According to the Socio Economic Survey of 2015-16, the State could bring down the debt as percentage of GSDP from 29.36 per cent in 2015-15 because of the greater GSDP growth during the year. Market borrowings constituted a major chunk of 56 per cent of the total loan outstanding while loans from other sources accounted to 18 per cent. Borrowings from the Central government stood at 8 per cent and loans from small saving schemes and PF constituted 9 per cent each.

Market loans are repayable within 10 years from the year of borrowing, as interest payment on the outstanding loan would be quite a burden on the state exchequer. So to service the outstanding debt of Rs 80,000 crore, the State would have to shell out over Rs 60,000 crore towards interest alone over a ten-year period.

Moreover, the much-awaited permission to increase fiscal deficit to 3.5 per cent from the 3 per cent according to the Fiscal Responsibility and Budget Management (FRBM) will not be extended to the needy State while others such as Telangana have already obtained the permission.
According to NITI Aayog “Increase in FRBM limits are governed by the guidelines given by the Finance Commission and hence it simply depends on whether a State fulfils prescribed criteria or not”.

This means effectively, the norm will not allow Andhra Pradesh to go for higher market borrowing while other States enjoy that facility. Recently the Centre at a meeting explicitly made clear the procedural difficulties in increasing the deficit and borrowing limits of State. According to the existing norms, debt of a State should not exceed 25 per cent of the Gross State Domestic Product (GSDP) while interest amount payable on loans cannot go beyond 10 per cent of the revenue.

Andhra Pradesh stands a loser in both. According to the Socio-Economic Survey 2015-16, Andhra Pradesh GSDP is estimated at Rs 6.83 lakh crore while debts stood at Rs 1.90 lakh crore accounting for 27.88 per cent of GSDP. Though the Central taxes devolution, grants and market borrowings are of similar magnitude for both AP and Telangana, AP has lost ‘significant’ portion of her resource base after division. The shift of administration from Hyderabad to Amaravati and building of new capital city besides regular development expenditure is bound to further strain the financial condition.

However, according to RBI data, States borrowed a total of Rs 2.95 lakh crore last year, which is around half of the gross borrowings of the Centre of Rs 6 lakh crore. The RBI also states that anticipating wider deficits and higher borrowing requirements this year, several States have already starting passing resolutions to borrow more.

The economists have opined that the importance of fiscal deficit is to know how much the government will have to borrow because that much pressure there will be on the liquidity available for private sector needs. It is for this reason the Centre as well as State deficits too should be factored into macro-economic analysis and the FRBM framework, which the Centre is reviewing, should focus on the aggregate deficit for the country.

By G Rajendera Kumar