The Andhra story: Growing populism vs rising debt
Ahead of the Assembly polls, the state’s economic health is in focus as it has consistently breached the fiscal deficit in eight of the last 10 years since Telangana’s formation. explains
In the lead-up to the May 13 elections for a 175-member Assembly, Andhra Pradesh’s fiscal health is under scrutiny. The state that enjoyed a revenue surplus for at least five consecutive years until Telangana’s formation in 2014-15 has since struggled to balance its books.
The revenue deficit, or the excess of current expenditure over current receipts, hit 3.3 per cent of Andhra’s gross state domestic product (GSDP) in 2022-23. It was projected to shrink to 2.2 per cent in the Revised Estimate for 2023-24, marking the twilight of the YSR Congress Party’s (YSRCP’S) current rule. The Covid-19 pandemic exacerbated the deficit, pushing it to 3.6 per cent of GSDP in 2020-21.
Under the previous Telugu Desam Party (TDP) administration, the revenue deficit was relatively contained, never exceeding 2.5 per cent of GSDP. However, this period did not face a crisis akin to Covid-19, which strained most states’ revenues.
The upcoming Assembly elections see the YSRCP government, led by Y S Jagan Mohan Reddy, challenged by the National Democratic Alliance (NDA), comprising the TDP, Bharatiya Janata Party (BJP), and Jana Sena Party. The Congress-led INDIA bloc is also vying for power.
Since 2014-15, Andhra Pradesh’s revenue balance has been in deficit, with revenue expenditure constituting 80-96 per cent of total expenditure in six of the past 10 years. This leaves little room for capital outlay, which may have never exceeded 12.2 per cent of total expenditure under either the TDP or YSRCP government.
The state government's fiscal deficit remained within the permissible limit only once under Jagan Mohan Reddy’s rule, in 2021-22. The Centre relaxed the fiscal deficit limits for states due to the Covid-19 pandemic, allowing up to 5 per cent of GSDP with certain conditions for 2020-21. However, Andhra's deficit touched 5.6 per cent of GSDP that year. It was also 4.1 per cent during 2019-20, exceeding the permissible limit of 3 per cent at the time. The deficit stood at 4 per cent of GSDP in 2022-23 and is projected to rise to 4.2 per cent in the Revised Estimates of 2023-24. States are now permitted a fiscal deficit of 3.5 per cent of their respective GSDP, with 0.5 per cent tied to power sector reforms.
Under the previous TDP rule, the state government’s fiscal deficit met the permissible limit of 3 per cent of GSDP only in 2014-15.
The YSRCP regime’s widening fiscal deficit has increased the state’s debt burden. The outstanding debt has never fallen below 30 per cent of GSDP during the current regime. Under the TDP, the highest level of debt was 28.8 per cent of GSDP in 2016-17.
Despite this, the state government is implementing a system guaranteeing a monthly pension of 50 per cent of the employee's last drawn basic pay. If the pension received under the new pension system (NPS) is less than the guaranteed amount, the state government will cover the shortfall. The system’s immediate impact on the exchequer is negligible, but repercussions will be felt when NPS employees start retiring from the mid-2030s.
Jagan Mohan Reddy, in his party’s manifesto, has promised to increase annual financial assistance to farmers under Rythu Bharosa to ~16,000 from the current ~13,500. This includes ~6,000 from the Centre under its Pm-kisan Samman Nidhi. With the BJP manifesto retaining the assistance at ~6,000, the YSRCP would increase its assistance to farmers from ~7,500 to ~10,000. The party also pledged to raise the welfare pension to ~3,500 from the current ~3,000 and to enhance or continue other benefits for women and weaker sections.
The TDP has yet to release its manifesto, but party national general secretary and Chandrababu Naidu’s son Nara Lokesh has promised a suite of guarantees. These include a ~20,000 annual financial assistance to farmers, ~15,000 per schoolgoing child per year, three free cooking gas cylinders per household per year, and ~1,500 per month to women aged 18 to 59 years. Lokesh also promised a monthly unemployment allowance of ~3,000 and the creation of two million jobs. Unemployment in the state has recently been higher than the national average. For instance, 4.1 per cent of those willing to work (above 15 years of age) were unemployed in 2022-23, compared to 3.2 per cent nationally, according to the periodic labour force survey (PLFS). However,
Despite these challenges, the state has a lower proportion of people in multidimensional poverty. Its per capita income has consistently exceeded the national average, even after Telangana’s formation in 2014. In fact, its per capita income was about 30 per cent higher than the national average for most of the YSRCP rule. The first year of the previous TDP rule saw the state’s per capita income 8.4 per cent higher than the national average. By the time the TDP left government, the state’s per capita income was 22.3 per cent higher than the national average.
For the past four years, the state’s monthly average retail inflation has been higher than the national level. This was also the case in two years of the TDP rule — 201516 and 2016-17.