How do state governments meet the expenditure commitments, including those made in the budget and towards the pet projects announced during elections? The governments also have to find ways to fund added expenses in cases of unexpected emergencies such as coronavirus. According to a senior government official in Andhra Pradesh, the state government has been announcing a series of committed expenses it's incurring and has come up with a slew of expense management measures to fund these.
Some of the major committed expenditures
On April 30, Andhra Pradesh Chief Minister YS Jagan Mohan Reddy gave a nod to clear all the pending dues to the MSME sector. This is for the last five years - from 2014-15 to be precise - accounting for Rs 905 crore to be cleared in two instalments (in May and in June). In addition, all the minimum power demand charges of MSMEs estimated at Rs 188 crore during the months of April, May, and June are to be waived. Rs 200 crore is going to be provided as input capital to the firms at low-interest rates in partnership with SIDBI. It's a part of an action plan to boost the MSMEs impacted due to Covid-19. Over 72,531 micro-enterprises, 24,252 small and 645 medium scale industries are expected to benefit.
Similarly, dues worth nearly Rs 1085 crore are pending for units in the textile sector too. However, the state here is awaiting details of a proposed central government plan to bail them out. Another major expenditure head is the accumulated Rs 3700 crore (over the past six quarters) towards college (undergraduate - engineering and medical) fee reimbursements for the economically weaker section students and some of it for their scholarships.
Then, there is the unavoidable payment that needs to be made towards payment of pensions each month of around Rs 1400 crore. The interest reimbursements for women self help groups paid to the banks amounting to around Rs 1400 crore also stands as an expenditure the state is committed to.
The state has a programme "Rythu Bharosa" to extend investment support to farmers, especially during the kharif and rabi seasons. It is now due in May and stands at around Rs 3,000 crore (for kharif crop). Later, a lower amount is given during the rabi season. The amount is transferred to bank accounts of farmers for purchase of seeds, fertilizers and pesticides.
So, how does the state propose to raise the resources to fund these? These have been made possible by a combination of measures, according to a senior official of the state who spoke on condition of anonymity.
Measures to raise the funds
These include, withholding close to one-fourth of the salaries to leaders and senior employees such as to the ministers, IAS and IPS officers, who are all getting only 50 per cent pay. However, full salaries are being paid to those in health care, police, sanitation, village secretariats, class four employees and pensioners. All of this has meant, government is today able to hold back Rs 1500 crore to Rs 2,000 crore each month for the last two months. Also, outflows towards capital expenses on projects are also down. It has also released funds to the tune of Rs 1500 crore as various projects on roads, irrigation and others have been stalled. But then, the state borrowings have not stopped even as execution of some of the schemes has been stalled. This is also getting translated as liquid cash for the state in the region of Rs 3,000 crore every month as Andhra gets around Rs 35,000 crore annually.
So, all of these put together, the state is able to set aside almost Rs 6,000 crore every month and then decide what to spend these on. On COVID-19, the official says, the expenditure currently is not huge and stands around Rs 300 crores a month. It is largely for mobilising the hospitals and on spending for additional beds and masks and protective gear. Also, the state also gives away Rs 2,000 each to the affected people (around 1400 positive cases) and towards spending on food for the poor.
Devolution of funds from Centre
However, the devolution of funds from the Centre still remains an issue. Similar to other states, Andhra too had to see a cutback of around 30 per cent of the total funds transferred in the first week of April, according to the official. However, the Centre describes it more as an 18 per cent cut and highlights the added benefits the states now stand to get in terms of temporary reliefs via ways and means advances, higher overdraft facility and borrowing limits.
Post COVID-19, the official says, there are plans on revenue mobilisation to the tune of Rs 6,000 crore to Rs 7,000 crore in the state. It may include levies on the liquor industry and perhaps also on diesel and petrol. Though, none of these are possible at the moment.