HomeIndustry NewsWith a huge debt hole, CBN’s task cut out

With a huge debt hole, CBN’s task cut out

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Why rebuilding Andhra needs business reforms

Andhra Pradesh has returned Chandra Babu Naidu back to power for a record fourth term and Andhra Pradesh is all gung-ho that the original “CEO-CM” is back at the helm, to do once again what he accomplished in his previous tenure from 2014-2019 for the state in infrastructure, investment, and economic growth. 

To be sure, the new Chief Minister cannot afford to rest on his laurels. Given the fragile state of the economy, stalled infrastructure projects, and the massive work of state reconstruction, he has an onerous task on hand. 

The state’s fiscal health is dire. It is saddled with a huge debt burden, is strapped for funds for the construction of a new capital in Amaravati, needs to provide for the Polavaram irrigation project, in addition to the Super Six promises made during the Assembly elections.  

According to the state government budget for 2023-24, of a total expenditure of Rs 2.6 lakh crore, the state’s bill on salaries, pensions, and interest touched almost Rs 50,000 crore. 

This makes up 24% of total revenue receipts for the year, which means that a fourth of the state earnings are already locked in committed expenditure. 

In a trend that has only got accentuated over the years, this has left little room for capital expenditure, telling on the state’s infrastructural and industrial investment.

Rating agencies have repeatedly highlighted the strained finances of the Andhra Pradesh due to its steadily burgeoning indebtedness and a fiscal deficit that has remained elevated most of the time during the last 10 years. 

In the estimate of India Ratings, the state has an overall public debt of Rs 4.83 lakh crore, pegged at 33.5 percent of GSDP (state gross domestic product) during 2023-24. 

“The debt levels of the Government of Andhra Pradesh have been higher than the prudential level of 25 percent since FY17,” Mr Paras Jasrai, Senior Economic Analyst, India Ratings told Vizag Industrial Scan, “The COVID-19 led disruption in economic activity led to a spike in debt to a 4-year high of 36.9% of GSDP in FY 2020-21.” 

The state needs to spend rationally in order to follow the 15Th Finance Commission’s indicated path of curtailing debt 32.1%, he says.

According to PRS Legislative Research, Andhra Pradesh’s fiscal deficit hit 3.6% of GSDP in 2022-23 and is budgeted to be higher in FY 23-24 at 3.8% with revenue deficit pegged at 1.5%

Bifurcation blues

A lot of the state’s financial woes may also be attributed to the bifurcation. In undivided Andhra’s heyday, Hyderabad emerged as an economic centre and IT hub in its own right singularly because of Chandra Babu, said Mr Rony Antony, Senior Partner at BDO India consultancy. 

However, not enough de-risking was ever done by developing another such hub, Vishakhapatnam being one such missed potential. 

The good news is that the state is ripe for developing electronics manufacturing, automotive, renewable energy, defence, automotive, pharmaceuticals, and textiles industries.

Mr Sandeep Paidi, Office Managing Partner, KPMG, Hyderabad, who has worked with state governments in policy and business reforms, believes that Vizag, Tirupati, and Vijayawada are the three regions that will see the next round of development as industrial hubs over 2-3 years. 

Tirupati has the wherewithal to be the mobile and electronics hub and Vijayawada as the SME hub, he says. 

The Vizag Chennai Industrial Corridor, considered critical to India’s “Act East” policy, is strategically centered around the Krishnapatnam port. 

The second industrial corridor at Orvakal, in the works in Kurnool district –along with the Kopparthy Industrial Area in YSR Kadapa district  – could emerge as an industrial node for pharma, textiles and apparels. 

The third cluster under the spotlight in his analysis is Anantapur that should see a renewed focus on defence and aerospace industries. 

Tourism could get the boost it deserves once the greenfield Bhogapuram airport, 40 km from Vishakhaptnam, is completed.

Central Assistance package

However, the best laid plans will remain just that – with empty coffers. Mr Naidu is believed to have sought a Rs 1 lakh-crore assistance package during his meetings with the central ministers, including finance minister Nirmala Sitharaman, and the chairman of the 16th Finance Commission, Arvind Panagariya prior to the Central Budget due on July 23. 

Even as the TDP leader goes about his work, experts point out the need for concomitant infra structure development, business reforms and right policy action. 

Mr Adil Zaidi, Partner, Economic Development Advisory at EY, lists out the need for putting in place a marine infrastructure policy to leverage the state’s enviable marine resources, and an Industrial Water authority that will regulate tariffs, and also standardize sourcing and disposal of water used in industry, much like what UP has done in Bundelkhand.  

He also proposes something called a District Accelerator Plan for most of the districts of Andhra Pradesh as part of which each district prepares an economic plan – to be implemented via the District Collector’s office unlike the centralized approach being followed now. 

Andhra Pradesh might have lost its way to pure welfarism, but Mr Naidu seems determined to put it back on track.

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