Bonanza For Andhra Pradesh Is Good Optics, But There Is No Free Lunch

Andhra Pradesh comes off looking good from Finance Minister Nirmala Sitharaman’s record seventh consecutive budget presented on Tuesday.

Finance Minister Nirmala Sitharaman’s budget speech contains a promise to “arrange” Rs 15,000 crore this fiscal for capital needs, support for the early completion of the Polavaram project, and grants for the development of Rayalaseema, Prakasam and North Coastal Andhra area. The Centre will also allocate funds for essential infrastructure in the Kopparthy node on the Vishakhapatnam-Chennai Industrial Corridor and the Orvakal node on Hyderabad-Bengaluru Industrial Corridor.

Quite understandably, reacting early to the announcements the state leadership were all praise for the Modi administration. However, the political dispensation needs to realise there is no free lunch. And it is only after the ink dries that one will know the real cost of the apparent largesse from the NDA to its southern ally.

This note of caution stems from a second reading of the Finance Minister’s speech which throws up similarities between the NDA-1 government’s Finance Minister Arun Jaitly’s 2014-15 budget speech. 

Presenting the budget barely 40 days after Andhra Pradesh split into two, Jaitly had said: “My Government is committed to addressing the issues relating to development of Andhra Pradesh and Telangana in the AP Re-organization Act, 2014. Provision has been made by various Ministries/Departments to fulfill the obligation of Union Government for both the States.”

While Naidu and company went gaga over the "Sab ka Saath Sab ka Vikas" budget on the day, soon thereafter relations soured, and he withdrew from the government in 2018 despite a subsequent announcement of a further “Special Development Package” and tax incentives for industries set up in the backward districts of the state. The bone of contention was the demand for the Special Category Status and big-ticket funding for the Amaravati capital project and Polavaram, apart from other major projects in the new state.

Naidu has now dropped the demand for the SCS in anticipation of a huge financial package. But is it forthcoming and will it be commensurate with the expectations?

Interestingly, the Finance Minister clarified at the customary post-budget press conference, the Rs 15,000 crore financial assistance announced is loans to be arranged by the Centre through multilateral agencies. And one knows such loans come with strings attached. The contours of these arrangements are not known at this time, but if AP were to pay back these loans even over a long-term, it is bound to add to the already untenable debt overhang of the state.  

According to RBI data, Andhra Pradesh had a public debt of Rs 4.83 lakh crore last year. That is a third of its GSDP as per the 2023-24 state budget document. Besides this, the off-budget loans and government guarantees add up to another Rs 1.39 lakh crore, apart from central loans worth Rs 26,296 crore in the previous year. According to reports, this could be a gross underestimate given the rampant recourse to borrowings by the previous government. One top of this, according to the state Finance Department, contractor payments of up to an estimated Rs 1 lakh crore uncleared by the previous government and currently pending must be taken care of.

Add to this, the pressure to deliver on election promises, ironically branded as the Super Six by the TDP-Jana Sena combine and one can well imagine the extent of fiscal challenges that Naidu has on his hands. These promises include creating 20 lakh jobs in the state or Rs 3,000 per month dole for every unemployed youth, Rs 15,000 for every schoolgoing student per year, Rs 20,000 dole for every farmer per year, three free gas cylinders for every household per year, and free bus travel and a monthly dole of Rs 1,500 for every woman in the state. There are no estimates on the burden on the exchequer for this largesse.

The biggest items on Naidu’s to-do list are the Polavaram multi-purpose irrigation project on the Godavari and the Amaravati capital region project. Both these mega projects, estimated to cost Rs 47,7000 crore and Rs 51,000 crore respectively, have been beset with problems and inordinate delays on account of the previous YSRCP government’s lack of interest in them.

On for about 20 years now, almost 77% of the work on the Polavaram project is said to have been completed. When fully operational, it will have a capacity to irrigate 4,36,825 hectares and generate 960 MW of hydropower, apart from providing drinking water to a population of 28.50 lakh across 611 villages. The remaining works are estimated to cost Rs 17,144 crore. 

Though Polavaram may not appear to be a major test for Naidu, given the commitments under various schemes and now, with the Centre’s promise to speed up assistance, the bigger challenge for Naidu will be his pet project, the Amaravati Capital City project, which as per initial numbers was projected to cost Rs 51,687 crore.

It is spread across 53,748 acres of land, pooled from local farmers in 2014-15. With a total debt financing component of Rs 37,112 crore, to date Rs 5,106.59 crore have been mobilised by the Andhra Pradesh Capital Region Development Authority, the implementing agency through various means including private placement of bonds worth Rs 2,000 crore on the BSE.

Of the Rs 2,500 crore promised by the central government, Rs 1,500 crore were released as of May 2019.  Apart from the facilitation being offered by the central government, the Naidu administration will have to come up with other innovative means to raise funds for this iconic city. 

Talking about other projects, there are some 10 other major industrial initiatives, including a greenfield refinery that was promised in the Schedule 13 of the AP Reorganization Act, and sundry other infrastructure projects that need adequate funding but do not find mention in the budget. The ones that do find mention have very meagre allocations.

However, more important than these, the bigger headache for Naidu is to find resources to run day-to-day affairs of the administration. For instance, in July alone, the government needed to mop up Rs 10,000 crore towards payment of pensions and salaries even as it has had to come to terms with empty coffers.  

Therefore, the focus on mega projects and long-term development agenda apart, Naidu will also have to concentrate on raising his own revenue for running the government effectively. Better fiscal management and attracting new industry quickly for medium-term industrialisation will thus have to be given special attention. The big question is how will he do it in the face of keeping his electoral promises?

Chitti Pantulu is a Hyderabad-based journalist and has covered business and technology trends for the last 25 plus years. 

The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.