Growing public debt in AP
As per the indicative calendar of Market Borrowings by various State Governments released by the Reserve Bank of India, the State of Andhra Pradesh has planned to borrow an amount of Rs 2,000 crore every month during 2016.
If not contained, it will totally jeopardise credit worthiness of State
An analysis of the outstanding public debt reveals the fact that the public debt which was Rs 1,12,743 crore in 2010-11 has scaled up to Rs 1,90,513 crore by 2016-17 (vide Budget Estimates of 2016-17), an increase by 56.48 per cent over six years. As per cent of GSDP, the outstanding debt has gone up from 20.67 per cent in 2010-11 to 27.88 per cent in 2016-17.
Examined from the point of view of source from which this debt is mobilised, we would notice that about 60.46 per cent is raised in the open market as loans through RBI, about 7.58 per cent through loans from the Central government, 16.04 per cent from autonomous bodies, and about 15.91 per cent from PF Fund and small savings organisations. This is the data as projected for the year 2016-17 through its budget document by the new government.
As per the indicative calendar of Market Borrowings by various State Governments released by the Reserve Bank of India, the State of Andhra Pradesh has planned to borrow an amount of Rs 2,000 crore every month during 2016. That the State is running the show based on the borrowings from market is quite evident from the financial data of the government. While the government proposed about Rs 20,466 crore receipts under this head during the Budgeted and Revised Estimates for the year 2015-16, they got enhanced by another Rs 4,000 crore to Rs.24,028 crore during 2016-17.
After meeting the annual payments, the net amount is estimated to be Rs 19,458 crore for 2016-17. For a State having own tax receipts of the order of Rs 80,000-90,000 crore only, it cannot afford to meet heavy interest burdens; which is hovering at present around Rs 13,000 crore and the same is expected to grow to the tune of Rs 16,470 crore by 2019-20, as per the estimates of the Fourteenth Finance Commission. Added to these, the States are also very active in providing guarantees for the loans raised by its corporations, autonomous bodies and sometimes on behalf of private parties, too.
These guarantees amounted to around Rs 10,675 crore for 2015-16, which were three times that of 2013-14. Therefore, the government’s obligations under these two heads themselves turn out to be heavy. The latest news is that the State government wants to stand as guarantor for the bidders willing to buy the State-owned corporations. This would further shoot up the amounts to an unimagined figure.
In order to ensure efficient and equitable fiscal management and long-term macro-economic stability, the Central government has passed the Fiscal Responsibility and Budget Management (FRBM) Act, 2003. Accordingly, the Central Government shall lay in each financial year before both the Houses of Parliament its efforts and strategy to contain revenue and fiscal deficits.
The same discipline is sought to be imposed on the fiscal management of the State governments. To achieve these objectives, the Central government has issued FRBM Rules 2014, specifying annual targets for reducing the deficits. The ultimate objective was to eliminate revenue deficit by 31st March 2008, by reducing the same by at least 0.5 per cent a year, beginning with the financial year 2004-05. Whereas the targeted reduction for fiscal deficit is by 0.3 per cent or more each year and finally bring it down to 3.0 per cent. These targets could never be met and the revenue and fiscal deficits remained at 2.5 and 3.5 per cent respectively.
It had been the experience of the Centre that every time at the time of Budget presentation tall claims were being made and the targets being pushed forward to the next year and the dream of eliminating them completely has been remaining elusive. As regards the position of the new State of Andhra Pradesh, the revenue and the fiscal deficit stood at 2.61 per cent and 3.91 per cent respectively during 2014-15. The State could bring them down to 0.69 and 2.82 per cent for 2015-16 (Revised Estimates). It is projected that these deficits may be around the same percentage for the year 2016-17 also at 0.71 per cent of GSDP in case of revenue deficit and 2.99 per cent of GSDP in case of fiscal deficit.
In spite of the tall claims by the Finance Minister that Andhra Pradesh is the only State, strictly adhering to the norms of the FRBM, little attention is paid to the growing problem of debt. A day may come when it jeopardises the creditworthiness of the State in its entirety. (Writer is Former Vice-Chancellor, Acharya Nagarjuna University)
By Prof K Viyyanna Rao
