Debt explosion in the state!

There is no chance of getting stuck in the debt circle,
the cost of development is low,
CAG’s extreme comments

Today, Amaravati: ‘Most of the loans taken by the state government are being used for debt repayments and to compensate for the deficit in revenue, which is reducing the productive capacity of the loans collected by the state. The state’s debt service burden is on an explosive trajectory if we consider the borrowings taken in other ways without showing in the budget. The Comptroller and Auditor General’s (CAG) report has dried up the state’s financial situation. The debt-to-Gross State Product (GSDP) ratio recorded an upward trend between 2017-18 and 2021-22. The state government is dependent on loans taken by corporations, public sector organizations and special purpose vehicles. Although the state government shows that the percentage of loans in GSDP is only 31 percent by March 31, 2022, the state’s debt burden is actually much higher. If non-budgetary loans and other commitments are also taken into account, the percentage of loans in GSDP is 42.33. This is 6.73 percent more than the prescribed limit,’ the CAG clarified.

In order to overcome this debt burden, the state government will have to devise a debt strategy along with providing additional revenue sources. If there is no concrete plan to fulfill this responsibility, the remaining resources for development activities are likely to be depleted,’ the CAG opined.

That is, if the revenue is not increased to pay off the debts, it has been analyzed that there will be no development. If we look at the current statistics, starting from 2021-22, the state government will have to pay Rs. 3,47,944.64 crores in interest and principal by 2030-31. Given the current situation, the debt repayment liability will reach a record high in 2024-25. According to the current calculations, the debt of Rs.42,362.20 crores will have to be repaid in that financial year. After that, there is a possibility that this debt liability pattern will decrease slightly, but there is no possibility of further increase in the debt burden if we depend on open market loans and other debts for expenses without increasing the revenues.

The danger of getting stuck in debt..!

The CAG report said that the state government did not take these loans for development works. “Between 2017-18 and 2021-22, the state government is taking loans and using that money to settle old debts. 65 to 83 percent of the new debt is used to pay off the old debt. The pattern shows that these debts are spent on amortization rather than on the creation (development) of capital assets. The CAG warned that if the collected loans are used for debt repayment instead of for creation of fixed assets, the burden on the public exchequer will increase and the public debt will become unsustainable and the state will be trapped in debt trap.

The cost of development work is less!

The share of capital expenditure spent on development works in the state is low. Generally all the states spend an average of 14.41% of their total expenditure on development works. But Andhra Pradesh spends only 9.21 percent on capital expenditure (development works). It is less compared to other states. The CAG report said that this would affect the creation of physical assets in the state and impact economic development in the long run.

The budget does not show many burdens!

Compared to the previous year, the outstanding loans have increased by 6.97 percent. But the state government is not showing many burdens in the budget. 1,18,394 crores in the form of non-budgetary loans, dues to DISCs for the year 2021-22, mandatory dues to irrigation projects and water supply schemes amounting to Rs.17,804.20 crores. These are not shown as part of the budget. This will not only undermine the financial management of the government and the oversight role of the legislature, but will also have the effect of overriding the legislature’s control over the allocation of funds for critical infrastructure projects,” the CAG analyzed.

Debt is a secret…

The CAG suggested that there is a need to decide on proper procedures for utilization of debt. The state government is not disclosing non-budgetary loans in the budget. Taking those loans into account, the amount owed by the state government by March 31, 2022 would be Rs.4,90,897 crore. This amount is 40.85 percent of the GSDP’, said the CAG. According to the data of the state government, the CAG concluded that the net increase in non-budgetary loans in 30 corporations compared to last year was Rs.6,278.91 crore. The CAG has warned that there is a risk of the state government exceeding the ceiling on net borrowing due to non-budgetary borrowing, which will affect the revenue and fiscal deficit and exceed the targets set by the FRBM Act.

What the government is saying is not acceptable

The CAG said that the government was claiming that the state government had disclosed its dues under the FRBM Act, but in fact the government’s reply was not acceptable . The CAG said that the state government’s reply that they are disclosing all the dues as per the FRBM Act is clearly defined in the State Accumulated Fund, dues in public account, loans taken by public sector undertakings, SPVs, other instruments including guarantees of payment of principal or interest from the state budget, is not acceptable. stated.