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AP and Bihar’s finances are strained with high fiscal deficit and debt – Economy News
The return of the Telugu Desam Party (TDP) to power in Andhra Pradesh, taking advantage of populist incentives, could further harm the finances of the southern state, which is one of the most fiscally pressured among the large states, along with with Bihar.
The Janata Dal (United) led government in Biharin which Bharatiya Janata Party (BJP) is also a partner, has faced a difficult fiscal time due to weak revenue streams, which makes it too dependent on central transfers.
With the TDP and JD(U) emerging as key coalition partners in the National Democratic Alliance (NDA) government at the Centre, to be led by BJP’s Narendra Modi for the third time, both are seeking financial assistance from the Center to increase their resources to escape your financial difficulties.
Among the large states, Andhra Pradesh and Bihar exceeded debt and fiscal deficit targets set by the 15th Finance Commission.
Andhra Pradesh is one of the large states with a debt to GDP ratio of over 30% (33.5% in FY24) compared to the prudential level of 20% set by an expert panel. Furthermore, the southern state’s guarantee/GDP balance is 9%.
Guarantees, which are given by the State to its companies to raise funds for government programs, are negative for the State’s credit profile and are not prudent from a fiscal point of view.
The State’s fiscal balance could undergo a change in the short term if it has to fully implement the promises made by the TDP in the election provide various gifts such as three free gas cylinders per year to families; `20,000 investment support for farmers per year; 2 million jobs for the youth and an unemployment benefit of `3,000 per month, among others.
Although AP’s fiscal deficit was 4.2%, as per the revised estimate for FY24, against the prescribed limit of 3.5%, Bihar continued to have a bloated fiscal deficit of 8.9% of GDP for the year.
Bihar is one of the large states with a very high dependence on central transfers for its budget. While Andhra Pradesh’s own tax revenues constitute 76% of its total tax revenues, including central fiscal transfers, Bihar’s own taxes account for only 30%.
As a result, Bihar continued to borrow heavily from the market to meet its expenditure and service loan commitments. The state’s debt to PIBP was estimated at 37% in FY24, making it one of the most indebted states.
In the wake of the Center using the whip against states that resort to extra-budgetary responsibilities to finance their schemes, a Reserve Bank of India The State Government Guarantees Working Group recently recommended a series of measures, including capping its annual incremental guarantees, charging minimum fees, and advance disclosure of such liabilities.
Between the two states, Andhra Pradesh, with Rs 2,19,881 per capita net state domestic product at current prices in FY23, was way above Bihar’s Rs 54,111 as the eastern state lagged behind in industrialization.