Andhra Pradesh receives maximum grant from reform linked borrowing

The Central government announced a grant of additional borrowing permissions for all states to cope with financial constraints faced during the pandemic. The additional borrowing of 2% of the Gross State Domestic Product (GSDP) was aimed to support the state governments’ fight against coronavirus. However, to ensure long-term sustainability the Centre linked borrowings with four reforms with each reform having 0.25% of GSDP linked to its implementation. 

It is no secret that Andhra Pradesh is facing a severe cash crunch as a result of the numerous welfare schemes run by the State government. GoAP needs any grant or borrowing that it can receive for the proper functioning of the State. Andhra Pradesh has already implemented all four reforms and is the only one to do so yet, with the deadline for implementation being February 15th, 2021. This makes AP eligible for special assistance from the Centre to boost capital expenditure. The GoI earmarked Rs. 2,000 crore for states that complete at least three out of four reforms. 

The Central government implemented reform linked borrowings to encourage capital expenditure. GoI has stated that capital expenditure has a higher multiplier effect. This means that it will enhance the future productivity of the economy, leading to the higher economic growth of the states. However, the focus of the AP government has been on offering cash transfers rather than improving the state’s productive capacity which will empower people over time. 

The reforms include the implementation of the One Nation One Ration card, Ease of Doing Business, urban local body, and power sector reforms. 

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