Andhra Pradesh’s freebies conundrum

The fine balance between welfare and development has been given a short shrift

In the debate raging over ‘freebies’, Andhra Pradesh’s case presents a paradox. Chief Minister Y. S. Jagan Mohan Reddy makes frequent visits to New Delhi and meets Prime Minister Narendra Modi with a long wish-list of financial demands. His last such meeting saw these demands cross ₹1 lakh crore.

But when he returns to Amaravati, Mr. Reddy doles out freebies and his government claims that it is fulfilling all the Navaratnalu (nine gems) promises which Mr. Reddy made before the 2019 Assembly elections. His government claims that it has transferred ₹1.65 lakh crore as Navaratnalu, most of them direct benefit transfers, to people over the last three years, despite challenges such as the Centre pruning the State’s share of central taxes.

While seeking the Centre’s help, Mr. Reddy’s government was so upset with the Supreme Court’s scrutiny of freebies in a case that it decided to implead itself. Apparently, it was worried that its voter-targeted apple cart would be upset in the 2024 Assembly elections if the Supreme Court passed any adverse order. In his impleading affidavit, YSRCP General Secretary and Rajya Sabha MP V. Vijayasai Reddy argued that these freebies should be treated as “social investment”. He expressed surprise over the way the two flagship welfare programmes of the State government — Amma Vodi (in which ₹15,000 is given a year to encourage mothers to send their children to school) and YSR Rythu Bharosa (in which ₹13,500 per annum in three installments is given to a farmer) — were treated as freebies.

How has the State been sustaining these freebies for three years given the impact of COVID-19 on the economy? Unsurprisingly, all these schemes are driven by loans raised from multiple sources. The government has often adopted off-budget and ingenious methods, even side-stepping the Centre’s Net Borrowing Ceiling and Fiscal Responsibility and Budget Management norms. The State does not have many options as its own resources are grossly inadequate. The State’s latest budget makes things clearer. The government presented the 2022-23 budget with an expenditure of ₹2.56 lakh crore and a revenue deficit of ₹17,036 crore. The State’s revenue receipts, including an open market loan of ₹55,000 crore, was estimated at ₹1,91,225 crore though there was a shortfall of ₹22,923 crore in income going by the revised estimates for 2021-22. For freebies, the government earmarked ₹48,802 crore. The budget projected total public debt to go up to ₹4,39,394 crore in 2022-23, up from ₹3,90,70 crore as per the revised estimates for 2021-22.

When the issue of the poor financial condition of the State came up for discussion in the Assembly recently, Mr. Reddy lashed out at the Telugu Desam Party for carrying out a “vicious campaign”. But in an analysis of the fiscal vulnerability of the States, the Reserve Bank of India (RBI) red flagged 10 States, including Andhra Pradesh, for having the highest debt burden based on the debt-GSDP ratio of 2020-21. Among the 10, Andhra Pradesh, Bihar, Rajasthan and Punjab exceeded both the debt and fiscal deficit targets for 2020-21 set by the 15th Finance Commission.

Data collated by the RBI, in the backdrop of Sri Lankan crisis, on major financial assistance/cash transfer, utility subsidies, loans or fee waiver, interest free loans announced by the States in their latest budget speeches (2022-23) show that the expenditure on freebies ranged between 0.1% and 2.7% of GSDP for different States. Andhra Pradesh featured second, behind Punjab, with 2.1% of GSDP, 14.1% of revenue receipts and 30.3% of own tax revenues being spent on freebies. The debt is no longer sustainable as the debt growth has outpaced GDP growth in the last five years, the study concluded.

That a lion’s share of scarce revenue is going into freebies and ‘birth to death’ schemes also means there are virtually no resources for physical and social infrastructure and development programmes. No well-meaning economist would object to welfare schemes targeting the poor and vulnerable sections, but they would object to a government doling out freebies to a large section of the population with the sole motive of winning elections. It is evident that the fine balance between welfare and development has been given a short shrift in Andhra Pradesh.