Andhra Pradesh in a fix: Three capitals, but very little money!

As Andhra Pradesh gets ready for three capitals, the problem staring at the government is the state's weak financials. The finances of Andhra Pradesh government are in a bad shape and need urgent attention. The new government was burdened with Rs 65,000 crore worth of pending bills soon after it took charge in May last year, a senior government official said.

"So far, we have managed to clear up to nearly Rs 30,000 crore," he told Business Today on condition of anonymity. Another Rs 35,000 crore is yet to be paid. Total pending bills in the power sector amounted to Rs 21,000 crore, out of which nearly Rs 9,000 crore have been cleared, the official said. The state government apparently has no source for additional revenue.

The state needs funds, up to Rs 40,000 annually, to spend on welfare schemes it has promised. But, the burden of debt is too huge. Total debt inherited by the current government amounts to Rs 2.8 lakh crore, according to the official. Factor in interest and another Rs 30,000 crore gets added, taking the total debt to around Rs 3.1 lakh crore, the official claimed.

Given the limitations in raising funds, the state government has no option but to cut expenses and explore innovative models to finance projects.

In fact, the government is mulling annuity-mode investment model where the party building the project (an infrastructure project or a hospital) makes all the investment and gives the government a long-term repayment schedule. This means that after a moratorium period of (say) a couple of years, the government can make annual payments of around Rs 4,000 crore or 5,000 crore, depending on the cost of the project, much like how individuals do in an EMI.

So, are there any takers?

"Many people have approached us and discussions are currently on. We need to look at what kind of securities and guarantees they need," the official said adding that the state government was looking to apply the funding model in some key areas such as irrigation, health, education and power.

The official also felt the move to create three capitals, other than achieving decentralised administration, was also a more cost efficient option. "If we go to Vizag and spend Rs 5,000 crore, the capital would be ready. Construction costs are much lower in Vizag as the nature of soil differs in the two regions (Vizag and Amaravati)," he said.

While the argument is for more prudence in deploying resources, industry insiders seek clarity on how the state intends to deal with stalled projects. Cancelled and stalled projects have hurt businesses, they claim. The official points out that the projects were stalled largely on account of in-progress inquiries. They are gradually getting cleared with the state government taking reverse tendering route, the official said.

The official also added that the state government would soon release a new industrial policy. "The state government has nearly finalised a new industrial policy and will announce it soon," he said.

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