N. Chandrababu Naidu, the Chief Mi-nister of new Andhra Pra-desh (what remains of the state after the creation of Telangana), wants to waive bank loans to farmers and women’s self-help groups amounting to a whopping Rs 54,000 crore.
Central government is already stretched on the finance front. In the interim budget presented in February 2014, the fiscal deficit for this financial year was projected to be at Rs 5,28,631 crore, or 4.1 per cent of the GDP. Even this projection was primarily achieved by cutting down on the asset creating planned expenditure and by not recognising “certain” expenses which in total amounted to more than Rs 1,00,000 crore. When this is taken into account, the actual fiscal deficit is significantly higher. Fiscal deficit is the difference between what a government spends and what it earns.
If the Central government chooses to assist the new Andhra Pradesh government with the entire Rs 54,000 crore that is needed, then it will end up adding to its already high fiscal deficit. In fact, the amount that the new Andhra Pradesh government needs to waive loans is more or less equal to the assistance that the old Andhra Pradesh received from the Central government over the last 10 years (between 2004-2005 and 2013-2014). This assistance amounted to a total of Rs 54,613.4 crore.
The only other option for Mr Naidu then is to borrow money by issuing bonds. The trouble is that a state cannot borrow an unlimited amount of money. The borrowing limit for old Andhra Pradesh had been set at Rs 29,000 crore at the beginning of this financial year. The borrowing limit for the new Andhra Pradesh will clearly be less. Also, as pointed out earlier the state is already expected to run a revenue deficit of Rs 13,579 crore during this financial year.