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Borrowings make AP’s debt sustainability suspect: CAG

Amaravati: The Andhra Pradesh government’s debt sustainability is suspect as a predominant part of borrowed funds is utilised for interest payments, thereby curtailing the scope for productive expenditure, the Comptroller and Auditor General of India has said.

The state has been borrowing primarily for restructuring of previous debts rather than for infrastructure creation, the CAG pointed out in its State Finances Audit Report for the year ended March 31, 2021.

In 2020-21, 77.12 per cent of the borrowed money was utilised for repayment of previous debt and only 8.91 per cent on capital expenditure (asset creation) as against 71.71 per cent and 7.76 per cent respectively in the previous year.

“Borrowed funds should ideally be used to fund capital creation and developmental activities. Using borrowed funds for meeting current consumption and repayment of interest on outstanding debt is not sustainable,” it observed.

The CAG’s critical observations came just days after Chief Minister Y S Jagan Mohan Reddy claimed in the Legislative Assembly that the state’s finances were rosy with a highest Gross State Domestic Product growth rate of 11.43 per cent.

“Along with the (open market) borrowings, the state government has been establishing Corporations, Public Sector Undertakings, Special Purpose Vehicles to raise funds as off-budgetary borrowings from the market, outside the ambit of Fiscal Responsibility and Budget Management Act to implement the state policies/ works. This further increases the interest burden of the state government, pushing the debt-to-GSDP ratio further up to 44.04 per cent,” the CAG noted.

The statutory auditor also pointed out that the state depended heavily on off-budgetary borrowings for direct benefit transfers (freebie schemes).

“Fresh borrowings for restructuring previous debt and increased use of debt for filling the revenue gap are leading to unsustainability of debt,” it said.

The state government resorted to such off-budgetary borrowings to the tune of Rs 86,259.82 crore at the end of March 2021.

The overall liability of the state, including the off-budget borrowings as on March 31, 2021, shot up to Rs 4,34,506 crore.

“Creating such liabilities, without disclosing them in the budget, raises questions both of transparency and of inter-generational equity,” the statutory auditor remarked.

The state government, in its response to CAG, claimed the increase in debt during 2020-21 was mainly due to fall in state’s own revenues and increase in expenditure to manage the COVID-19 pandemic.

The state’s revenue receipts jumped by 5.50 per cent in 2020-21 compared to the previous year with increased transfers from the Government of India.

The CAG said AP would have to repay 45.74 per cent (Rs 1,23,640 crore) of its debt in the next seven years.

“The state government has to formulate a well-thought out debt strategy and mobilise additional revenue resources to meet this debt burden. Unless there is a definite plan to meet the liabilities, the resources available for development will only shrink further,” the CAG warned.