Great expectations: A peep into Andhra CM Jagan Reddy's Budget books

The new government formed in Andhra Pradesh by Y S Jaganmohan Reddy presented a full Budget for FY20 in July. The revenue targets and expenditure goals, however, are too steep, possibly even unachievable, judging by the Budget balance sheet. 

State Finance Minister Buggana Rajendranath has projected that the revenue (tax, non-tax and central transfers) will reach Rs  1.8 trillion in 2019-20 (Budget Estimate), growing a whopping 56 per cent over 2018-19 (Revised Estimate). This was done to budget for a 40 per cent growth in expenditure for the current fiscal year, which too, is unprecedented for any state, or the Centre. 

An analysis of the state’s Budget data, maintained by PRS, a think tank, shows that Rajendranath has factored in his calculations the highest growth in “grants-in-aid” from the Centre. These funds are set to more than triple this year from 2018-19 — from Rs 19,000 crore to Rs 61,000 crore. This appears contradictory, as the Centre's transfers to states are set to grow slower than before this year, according to Union Budget documents. 

These funds are one part of the overall transfers from the Centre to states, apart from fiscal devolution, according to the Finance Commission formula. Grants-in-aid are used for three specific purposes: To bridge the revenue deficit, to provide for disaster relief, and to strengthen urban and rural local bodies. 

It is possible that the grants  budgeted by the state government are on the higher side.  Moreover, these grants are tied funds: They are transferred only if certain conditions are prevalent, or met. For example, local body grants are much higher in an election year. 

Growth in 2018-19 BE over 2017-18 Actuals, Growth in 2018-19 RE over 2017-18 Actuals, Growth in 2019-20 BE over 2018-19 RE; RE: Revised estimate, BE: Budget estimate; Source: PRS, RBI, Govt of Andhra Pradesh; GSDP: Gross state domestic product

 

 

In addition, the state budget also expects the state’s own tax revenue from excise, goods and services tax and value-added tax to grow 30 per cent this year. This is nearly in line with the Centre’s ambitious revenue budgeting. 

The analysis also shows that a similar jump in revenue was projected in previous years’ budget. The budget 2018-19 projected a 48 per cent growth in revenue, but could achieve a poor nine per cent growth according to revised estimates. A 30 per cent growth in spending was budgeted, but the state could afford only a 10 per cent rise. 

This fiscal position of the state has remained precarious, as a result. Despite budgeting for a revenue surplus financial year, AP remained revenue deficit in FY19. Fiscal deficit too overshot the target by nearly a full percentage point. 

For FY20, fiscal deficit is projected to be 3.26 per cent of the states’ domestic product, higher than the 3 per cent boundary set by the Fiscal Responsibility and Budget Management Act.