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Government borrowings lead Andhra Pradesh into troubles

by Staff
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andhra pradesh government borrowings

Repeated notifications from the central government and regulatory authorities have shed new light on the possible misuse of government borrowing funds and non-transparency in Andhra Pradesh.

Andhra Pradesh’s financial situation has been the focus of regulatory authorities as well as the central government. The Ministry of Finance cut 35% of borrowing capacity for the state and Rs 15,000 crore was removed from its borrowing space. Multiple sources have suggested that the state is in a debt trap. The Andhra Pradesh government borrowings, by March 2021 had reached 114% more than the amount budgeted for FY 2020-21, according to the latest CAG report.

In addition to budgeted borrowings, there are other issues with regard to off-budget borrowing and unpaid debts that have come to light. The Andhra Pradesh State Development Corporation (APSDC) is a one-of-a-kind company created by the Andhra Pradesh government in September 2020. The sole purpose of APSDC is to acquire funds for welfare schemes run by the government. The government guarantees for these loans is a whopping Rs 25,000 crore. This becomes a concern as, although the borrowing is not a part of the government budget, the interest payment on these loans is paid through the official budget. Additionally, this is in violation of the FRBM Act as well as borders on unconstitutional agreements between the government and banks. The revenue from Additional Retail Excise Tax (ARET) has been provided as a source of revenue for the APSDC. Such agreements have raised questions on the seriousness of the liquor ban by the government, as well as the fact that ultimately taxpayers money is being used to keep the state afloat.

The Andhra Pradesh government has invited upon itself the scrutiny of the RBI with regards to reckless borrowing and unhealthy spending habits. The central government allowed states an additional 2% borrowing limit above the FRBM guidelines conditional on the implementation of four reforms. Andhra Pradesh was able to achieve a Net Borrowing Ceiling of Rs. 42,472 crore for FY 2021-22, half of which must be utilised for capital expenditure within that year. Targets have been set for incremental use of these funds and the RBI will want to conduct quarterly reviews of the same. However, because the spending was not in compliance with the Ministry of Finance’s guidelines, 35% was reduced. In the last four months, the state government has borrowed more than Rs 18,000 crore from RBI auctions.

In July 2019, in a presentation to the XV Finance Commission, the CAG raised questions about extra-budgetary resources and whether the fiscal deficit and government borrowings as stated in the budget were understated. The CAG highlighted the fiscal risks due to non-transparency related to such borrowings. The Finance Commission stated that fiscal transparency in reporting of the state governments was a concern.


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