Former British Prime Minister Margaret Thatcher once said that the problem with socialism is that you eventually run out of other people’s money.
The warning, now, appears apt for the Jagan Mohan Reddy government in Andhra Pradesh which is on a spree of showering sops and freebies on targeted sections of the society while ignoring the task of shoring up revenues or attracting new investments into the state.
As the YSR Congress Party completes six months in office on Saturday (November 30), aggressive populism and political vindictiveness emerge as the two distinct features of its style of governance.
Jagan’s obsessive focus on cash dole-outs and freebies stems from his political positioning in the mould of his father Late YS Rajasekhar Reddy whose tenure as Chief Minister of the combined Andhra Pradesh between 2004 and 2009 was known for launching a string of popular welfare schemes.
Promising “Rajanna Rajyam”, a reference to the welfare-oriented regime of YSR, he swept the April elections, bagging 151 seats in the 175-member Assembly and 22 out of total of 25 Lok Sabha seats.
A set of nine key poll promises, called ‘Navaratnaalu’ (nine gems), focusing on agriculture, social welfare and education form the key element and a driving force of the YSRCP government.
While the 2019-20 budget, presented in July this year with a total outlay of ₹2.27 lakh crore, saw major allocations for the government’s flagship welfare schemes like Rythu Bharosa, pensions and cash dole-outs to targeted sections, the revenue deficit was pegged at ₹1,779 crore.
The 14th Finance Commission had recommended that the States should eliminate revenue deficits. The 2019-20 estimates for AP suggest that the state will not be able to meet this target anytime soon.
The fiscal deficit is estimated to be around ₹35,261 crore, which is 3.3% of the Gross State Domestic Product (GSDP). This is higher than the 3% limit prescribed by the 14th Finance Commission.
In 2018-19, the fiscal deficit as per the revised estimate was pegged at₹ 33,619 crore, a 38% jump from the budgeted estimate of Rs 24,205 crore. The net public debt is estimated at₹ 33,503 crore for 2019-20 while the outstanding liabilities are expected to be at 27% of the GSDP.
“The only achievement of this government in the last six months is that the borrowings have gone up by Rs 25,000 crore while no new development work has been taken up,” said former Chief Minister and Telugu Desam Party president N Chandrababu Naidu.
Fall in collections
The state suffered a steep fall in revenues during the first quarter of the 2019-20 Financial Year. According to the CAG report, revenue growth for the state was 59% in 2018-19. However, during the first quarter (April-July) of 2019-20, the revenue growth was 42%.
The revenue drop will increase pressure on the government’s welfare agenda. “This government is on a spending spree without working on revenue sources. It lacks basic administrative capabilities about revenues and welfare spending. AP is headed for a disaster,” warns TDP MP from Srikakulam K Rammohan Naidu.
There has been a slump in the commercial tax collections in the last four months with the state achieving 5 percent growth as against the anticipated 14 percent. Similarly, the revenues from transport, stamps and registration and excise have also fallen.
There was also a dip in GST collections which stood at ₹7,345.69 crore in the April-July period, which was behind the set target of ₹7,568.96 crore.
“If the choice is between providing viability gap funding for a private airline company to operate flight services to Singapore and ensuring nutritional standards for women in tribal areas, we will choose the latter,” the State Finance Minister B Rajendranath Reddy said.
The minister’s assertion sums up the focus of the government. However, the key question still remains about finding resources to fund the ambitious welfare programmes in a state that is still grappling with the bifurcation blues and struggling to attract private investments.
The government will need at least ₹60,000 crore per year to see through all the promised sops, which is a tall order given the fiscal position of the state.
After bifurcation in 2014, the residuary Andhra Pradesh began its tough journey with a revenue deficit of ₹14,242 crores for the financial year 2014-15, amounting to 2.72% of the GSDP while fiscal deficit stood at ₹20,320 crore, accounting for 3.8% of the GSDP.
However, the key challenge for the state government would be to improve the revenues and attract private investors to generate jobs. The state’s total outstanding liabilities is pegged at ₹2.61 lakh crore, of which ₹1.97 lakh crore is public debt.
“This government would like to see the state free from deprivation by 2022. While making extremely hard choices between wealth creation and welfare programmes, the government will strive to balance both with a bias towards welfare. Our conscience and choices are crystal clear,” the Finance Minister said while presenting the 2019-20 budget.
“Our challenge is two-fold. The previous Telugu Desam Party government had left the state’s finances in shambles and we need to set it right. And, we have to ensure that our welfare schemes reach every door-step without corruption and political interference,” said the State’s Municipal Administration Minister B Satyanarayana.
However, the experts have warned that given the poor fiscal health of the state, it would be difficult to defend an expansionist welfare agenda. “Going by the way the present government is doling out sops, a single state budget will not be enough to meet the expenditure,” taunted the opposition TDP leader and former Finance Minister Y Ramakrishnudu.
It is now widely believed that the single point agenda of the YSRCP government is to target political opponents and review all the important projects taken up during the previous regime, ostensibly to “expose irregularities and corruption” in sanctioning them. This, coupled with a string of freebies for various sections, defines the political strategy of the government.
The skewed focus on populist measures with little regard for their long-term impact on the frail economy of the state has created an imbalance. While dubbing the previous regime as an epitome of corruption, Jagan has not unveiled any alternative vision or development agenda.
The focus of the earlier TDP government was on increasing the revenue base of the state, in which it made progress by registering consecutive double-digit growth between 2015 and 2019. There was also a quantum jump in the per capita income from ₹82,870 in 2013-14 to ₹ 1,64,025 in 2018-19.
Instead of capitalising on this momentum, Jagan is on a spree of rolling back every single initiative of his predecessor, in the process inflicting damage to the image of the state as a destination for investment and business.
Having ridden to power on the promise of “Navaratnalu”, Jagan is already finding it difficult to roll out these schemes at one go due to the paucity of funds.
The chief minister made several symbolic gestures such as appointing five deputy chief ministers to give representation to major communities, passing legislation providing for 75% reservation to local youth in industries and factories, reserving 50% of government nominated contracts, nominated posts and state corporations for Backward Classes, SCs and STs and allocating 50% of seats for women in government nominated posts.
Though these moves are expected to bring in political mileage for the ruling party, they are likely to end up more as an exercise in tokenism.