The Central government has announced a reward to the state of Andhra Pradesh as special assistance for completing three out of four reforms. The completion of reforms was tied to additional borrowings of 2% of the state’s GDP. The YCP government wasted no time in seeking more borrowing and hence, Andhra Pradesh became the first state in the country to implement the suggested reforms. This has made the state entitled to receive Rs. 660 crore for capital projects, in addition to Rs. 344 crores as Special Assistance.
Along with Andhra Pradesh, Madhya Pradesh is also set to receive additional funding from the Centre. These are the only two states so far to receive the ‘Special Assistance to States for Capital Expenditure’. The central government’s intention behind encouraging capital expenditure is that such spending boosts revenue generation in the economy, and would help states to recover from the economic impact of COVID-19.
Capital spending includes the development of physical assets and infrastructure as well as the repayment of loans. While Andhra Pradesh recorded capital expenditure of around Rs. 15,000 crore from April to November 2020, the Jagan Mohan Reddy government has managed to accumulate a debt burden of more than Rs. 73,000 crore. In contrast, the capital expenditure of Madhya Pradesh is comparable at Rs. 14,000 crore whereas borrowings is significantly lower at Rs. 18,000 crore in FY 2020-21 so far.
The additional funding has come at a favorable time for the state government. The YSRCP government recently paid an installment of the Rythu Bharosa scheme and is expected to pay a second installment of the Amma Vodi scheme in January 2021. CM Jagan Mohan Reddy is waiting for the SBI to release an Rs. 3,000 crore loan for the same. The YSRCP government has already received Rs. 8,000 crore extra grants for the Centre as compared to the previous year.