Andhra Pradesh's coffers drying up!

Desaraju Surya
Hyderabad: Andhra Pradesh is heading for bankruptcy.
The state that boasts of a Rs 1.05 lakh crore Budget for the 2009-10 financial year, now hardly has cash reserves that are sufficient to meet the salary bill for the next two months besides the election expenditure.
The state government has approached the Reserve Bank of India for sale of securities to raise Rs 1915 crore to keep things moving. In the last four months the state has raised Rs 7,000 crore through sale of securities but all the money was ostensibly utilized on individual benefit schemes with the April elections in view.
As a result, all projects ambitiously launched by the Congress government have come to a standstill.
Contrary to what Chief Minister Y S Rajasekhara Reddy boasted, the global economic meltdown dealt a telling blow to the state economy as well resulting in a severe shortfall in revenues.
“Yes, it is a distress. Our revenues have certainly fallen but we are somehow managing the affairs,” a key official in the finance department said.
Bureaucrats running the finance department are, however, not willing to speak any figures. “This is election time and please don’t ask us for figures. It will send wrong signals and we will be in trouble,” the key official pleaded.
The finance department head, principal secretary I Y R Krishna Rao, was willing to say this much: “The situation is not bad as we have not gone for any overdraft facility. We can manage.”
A couple of examples clearly indicate how bad the state’s finances are. The government owes Rs 3400 crore to contractors executing various projects under the ambitious Rs two lakh crore irrigation development programme – Jalayagnam. This has virtually brought the project works to a halt as the contractors are unwilling to execute works without cash flowing.
The state government owes about Rs 12,000 crore to the power utilities, particularly the distribution companies (Discoms). Last month, the government released Rs 1050 crore out of the total outstanding, which is hardly sufficient to overcome the acute resource crunch being faced by the Discoms. Given the worst ever power crisis being faced by the state, Discoms are forced to buy power at an exorbitant price – Rs 12 to Rs 14 per unit. “Even if we are paying that much, there is no power available. Even if power is available, we have no money. The government is simply asking us to borrow from banks but we already owe crores of rupees to them. We are literally at our wit’s end,” head of a Discom lamented.
Though the state government was spending significant amounts on populist schemes like housing, free power, health insurance, Rs 2-a-kg rice and several others, it somehow managed to run the show in 2006-07 and 2007-08 financial years as it sold away hundreds of acres of government lands and raised about Rs 20,000 crore. With the real-estate bubble bursting in 2008, the Rajasekhara Reddy government could not sell land and this choked the revenues. At the same time, political expediency forced the Congress rulers to come up with one populist scheme after the other – ranging from enhancement of scholarships to students, fee reimbursement, waiver of loans to different sections, payment of incentives to farmers (who could not avail of the loan waiver) and the like.
The incentive (to farmers) bill alone touched Rs 1750 crore this year, as against Rs 800 crore initially estimated. At the same time, revenues through commercial taxes took a dip because of the economic slowdown while revenue from excise alone has been keeping the cash registers ringing, highly-placed official sources explained.
Now, the state government is knocking on the doors of banks, including the World Bank, to seek loans. Nothing explains the current scenario better than the government’s eagerness to secure a Rs 1300 crore loan from the World Bank for urban projects. “For more than two years we behaved as if we did not want any financial assistance from the World Bank and kept the project in cold storage. With our finances drying up, we have again gone to them with a (begging) bowl,” a high-ranking official noted.
Even individual departments, that are seeking release of funds from the state finance department, are reportedly being directed to raise loans from banks to carry on their projects.
As things stand – and with much more ‘populism’ in the offing after the polls – Andhra Pradesh seems to have no way out of the financial morass.