Chandrababu Naidu's revenue challenge in Andhra

Chandrababu Naidu's revenue challenge in Andhra

High profile investment melas by Indian states, backed by big numbers to showcase potential investor interest, are par-for-the-course today.

High profile investment melas by Indian states, backed by big numbers to showcase potential investor interest, are par-for-the-course today.

Pick up any newspaper, magazine or switch on the television and the pitch to investors is loud and clear. And yes, it is happening across India. Be it Jharkhand, West Bengal or Odisha, most states are competing with each other and going all out to woo investors.

Andhra Pradesh, after separation from the Telangana region in 2014, has joined the bandwagon too. Its investors meet, in end-January each year, is held in association with the Confederation of Indian Industry.

Last year, Andhra talked of huge investor interest resulting in the state government signing MoUs worth close to Rs 5 lakh crore with these investors. (see

This year, the stakes are even higher. The numbers doing the rounds have more or less doubled. To the credit of the new state and its IT savvy chief minister Nara Chandrababu Naidu is that it is talking now of a healthy conversion of intent into actual investments. The state officials expect around Rs 2 lakh crore worth of investments actually coming to the state from last year's MoU signing bonanza. Even if optimistic, it translates to around 40 per cent of the MoUs getting materialized, which by any yardstick is a good conversion, especially for a new state and one that has still to set up its capital.

What then is the concern for Andhra? Partly, it is to do with the fact that newer investments does not necessarily mean newer sources of revenue. This is at least in the short-to-medium term, which is when the state will actually need more revenues. Reason: many of the new investments have been attracted on the basis of the fiscal and other incentives offered to investors. These  include rebates and exemptions on several accounts such as stamp duty, VAT/ SGST (State Goods and Services Tax).

This, at a time when the state has a low tax-to-GSDP ratio (compared to some of the other industrially advanced states), is not a very happy situation to be in. Also, most of these tax revenues are linked to levels of urbanisation and industrialisation, a path on which the state has some distance to cover.

The state's industrial development policy for 2015-2020 has for instance, set a goal to increase the contribution of manufacturing to GSDP from 9.95 per cent in 2013/14 to 15 per cent by 2020.

And, as for tax to GSDP ratio, an important yardstick for revenue, here is how the state compares: For Andhra, the 14th Finance Commission had projected a tax to GSDP ratio for 2015/16 and 2016/17 at 7.98 per cent and 8.26 per cent respectively. This is against, 9.99 per cent and 10.06 per cent for its neighbour Telangana, 10.35 per cent and 10.41 per cent for Tamil Nadu and as high as 11.22 per cent and 11.29 per cent respectively for Karnataka.

In his 2016/17 budget speech, state finance minister  Yanamala Ramakrishnudu, had this to say:  "Overall, I expect the state's own revenues to grow by 16 per cent, from Rs 49,764 crores in 2015/16 to Rs 57,813 crores in 2016-17. However, the legacy of huge revenue deficit, an overhang from 2014/15, will continue to haunt us in 2016/17. We expect the Central Government to step-up its support to the State Development Plan (SDP) in the form of increased central assistance and special grants, apart from Rs 3,000 crore to partially offset the revenue deficit of 2014/15 financial year."

It must be said to his credit that the state did post growth in revenue. But talk to some of the state officials on how the numbers look today and here are two factoids that often come up: The actual growth in state's own revenue was around 17 per cent last year and in the current year, around 11 per cent so far. But then, the expenditure growth has been higher at over 20 per cent, with some estimates currently pointing to around 25 per cent. This, for an already deficit state. And a bit uncomfortable, if there is more spending on the revenue side without any proportionate increase in asset creation.

The state has the good backing of agri and allied sectors, part of it, economists often tell us, is driving its relatively good performance among Indian states in terms of overall GSDP growth, among the best in the country. But then, agri and allied sector creates wealth but does not necessarily result in higher revenues for the government. Remember, agriculture is almost a 'zero tax sector'. For the moment therefore, it may be worth waiting another month for the state to present its budget.