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AP’s Budget for 2018-19 reveals some disturbing trends


-Dr EAS Sarma

(Contents of the letter written to M Ravichandra, Special Chief Secretary, Finance Department ,Govt of AP)

….More than 62% of the amounts borrowed by the State during 2018-19 will go towards interest payments alone. With increasing borrowings resorted to by the State, the position will worsen further. This will leave no room for genuine development activity. This will progressively shrink the productive investment of the State on education, health, rural development, transport and so on.

The same budget figures for 2018-19 corroborate what I have indicated above.

If one compares the Budget estimate for social sector capital expenditure for 2017-18 with the corresponding Revised Estimate figures, there was a shortfall of more than 11%. The corresponding shortfalls in planned and actually realised capital expenditure figures for 2017-18 are 25% for Agriculture, 27% for Rural Development, 19% for Energy, 71% for Industry and 8% for Transport. This shows that, as a result of diversion of revenue for non-productive purposes and shrinkage in the space for capital investments, the State is unable to devote enough resources for lifeline sectors such as Agriculture and crucial sectors such as Social Welfare.

While the State’s finances are deteriorating thus, there seems to be no conscious effort on the part of the government to observe economy and austerity. Meetings are held, not in modest State guest houses, but in Five Star hotels. Special aircraft are routinely used for travel, unmindful of the fact that even US Ministers are reluctant to charter special aircraft, fearing public uproar.

Against this background, what distresses me is the way the State is building dreams about a grandiose capital city near Amaravati, a complex of cement concrete shells and real estate activity, that promise no tangible improvement in governance but expose the State’s fragile budget to enormous uncertainties.

The latest attempt by the State government revolves around “Amaravati Bonds” offering an interest rate as high as 10.32%, payable quarterly, of 10-year maturity,. There is a moratorium of 5 years for the principal amount and, after that, the principal is to be redeemed at the rate of 20% per year during the next five years. The State’s political leadership seems to be in a self-congratulatory mood but, as the head of the State’s Finance Department, do you feel comfortable with such high-cost borrowings?

Amaravati project, you should remember, has displaced highly remunerative agricultural activity that not only fed the State’s population but also provided gainful livelihoods to lakhs of farmers, agricultural workers and artisans dependent on agriculture. That means the State has already suffered a huge social cost. Can Amaravati, which consists largely of unreliable, speculative real estate activity, make up for such a large social cost and, in addition, generate adequate incremental returns that will permit the State to service the high-cost Amaravati bond, in conjunction with equally expensive World Bank loans and other costly borrowings?

Amaravati project cannot take off without a huge expenditure being incurred on pumping to evacuate flood waters of Kondaveeti Vagu and constructing a sizeable barrage on Krishna River upstream of Prakasam Barrage, to provide water for the city.

Has your Department factored in all this in projecting the finances of the State over the next decade?

By the by, Amaravati Bonds are truly expensive compared to bonds raised by other urban local bodies. For example, Greater Hyderabad Municipal Corporation (GHMC) recently issued bonds which were subscribed for an interest rate of 8.9%. Similarly, Pune Municipal Bonds were issued at an interest rate of 7.59%. Perhaps, taking into account the huge risks involved in bringing up Amaravati city, the State has had to dangle such a high rate of interest as a carrot to attract unwary investors to put in their hard earned savings. The present government is using the “sovereign” shield to get away with this but the debt service liability will ultimately devolve on the innocent people of the State!

I am surprised that there has been no hue and cry against diversion of the State’s meagre income derived from commercial activity and liquor sales to the poor, towards one small region surrounding Amaravati. It will not only divert resources from crucial sectors such as health and education, as well as social welfare, but also from critical spending in north AP and Rayalaseema.

These are concerns that any democratically elected government should discuss with the opposition parties and the public at large. The State, as I have said time and again, should come up with a White Paper on this for a public discussion and debate.

Please bring the contents of this letter to the attention of the CM and the State Cabinet urgently.

On my part, I am circulating this letter widely to generate a public discussion before the upcoming elections.

We, as citizens of the State, have every right to question the State government on how it spends the public funds and how it manages the State’s finances.


(Dr EAS Sarma,Former Secretary, Government of India)


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