Andhra Pradesh Economy: Borrowed Breath and Fiscal Fatigue
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Andhra Pradesh’s Fiscal Fatigue: Freebies and Imbalances Threaten Governance
By P SESH KUMAR
NEW DELHI, September 29, 2025 — Andhra Pradesh has rarely been an exemplar of fiscal prudence, but the past few years have seen a deeper slide into imbalance. In FY 2022–23, the state breached its own revenue deficit target and ended with a fiscal deficit of –4.01% of GSDP, well above the 3.5% ceiling prescribed by the XV Finance Commission.
Its capital expenditure was meagre, its liabilities rising, and its dependence on borrowings to finance revenue expenditure unmistakable.
The CAG audit confirmed what many suspected: Andhra Pradesh was living on borrowed breath. The years since have added layers of populist welfare, electoral giveaways, and off-budget guarantees, pushing the state into a cycle where debt sustains day-to-day expenditure.
The Public Financial Performance Index (PFPI) 2023–24 by AJNIFM (Arun Jaitley National Institute of Financial Management) corroborates this grim picture, ranking Andhra Pradesh 17th out of 18 general-category states.
With poor scores on expenditure quality, deficit management, and the weakest contingent liability profile in the country, Andhra Pradesh embodies the perils of a fiscally fragile state that has mortgaged tomorrow for today’s applause.
The CAG’s Red Flags: 2022–23 Snapshot
The CAG’s State Finances 2025 publication, anchored to FY 2022–23, is unsparing about Andhra Pradesh’s slippage. The state had budgeted a revenue deficit of –3.3% of GSDP, but ended up with –3.32%. Its fiscal deficit, projected at –4.5%, came in at –4.01% of GSDP—still far above the tolerance limit of 3.5%.
Outstanding liabilities were a hefty 36.3% of GSDP, with public debt at 27.65%.
Worse, the so-called “Golden Rule of Borrowing”—that loans should fund capital creation, not operating costs—was openly violated. The CAG found Andhra’s capital expenditure in 2022–23 was just 17% of its net borrowings, among the lowest in India. In effect, debt was financing salaries, subsidies, and pensions, not infrastructure or assets.
The Post-2023 Spiral: Welfare Overload
From 2023 onwards, the fiscal drag only deepened. Successive budgets leaned heavily on populist schemes—loan waivers, cash transfers, subsidised utilities, fee reimbursements, and pension hikes. Welfare expenditure ballooned to more than half the budget.
Revenue receipts struggled to keep pace, with GST buoyancy underwhelming and non-tax revenues stagnant.
The 2023–24 audit showed continued slippage: a widened revenue deficit, a stretched fiscal deficit, and little sign of correction. Off-budget borrowings, routed through state enterprises and backed by government guarantees, added opacity to the true scale of liabilities. By 2024–25, the state’s fiscal stance had hardened into structural deficit territory.
The PFPI Lens: Anatomy of Fragility
The AJNIFM PFPI 2023–24 puts Andhra Pradesh’s fiscal weaknesses into quantifiable perspective. With a composite score of 0.369 (rank 17/18), the state is one of the weakest performers in India.
Expenditure Management Index: 0.256 (rank 17/18). The state spends heavily on revenue items while underinvesting in capital creation.
Deficit Management Index: 0.277 (rank 17/18). Chronic revenue deficits and overshooting of fiscal deficit norms drag down performance.
Debt Management Index: 0.316 (rank 14/18). Debt ratios appear moderate but are structurally fragile, given the state’s weak revenue profile.
Contingent Liability Index: 0.066 (rank 18/18). The weakest in the country, reflecting a ballooning of guarantees and off-budget borrowing.
Resource Index: 0.544 (rank 14/18). Middling tax effort and stagnant non-tax mobilization, inadequate to sustain expenditure.
Profligacy Index: 0.627 (rank 7/18). A misleadingly better score, since the data window ends in FY 2021–22, before the latest welfare overload.
The PFPI essentially validates the CAG’s warning: Andhra Pradesh is structurally weak, and its reliance on guarantees and borrowings to fund revenue expenditure has pushed it into a low-efficiency trap.
The Welfare Trap and Off-Budget Mirage
Unlike Karnataka, which at least entered the freebie era with a measure of fiscal space, Andhra Pradesh began this phase already battered. Loan waivers for farmers, cash doles to women, subsidies on power and water, and a sprawling network of fee reimbursements turned the state into an “ATM welfare model.” Off-budget borrowings disguised the depth of the hole, but guarantees issued to public enterprises became de facto state liabilities.
This freebie culture also shrank capital outlays. Roads, irrigation, and infrastructure projects slowed, leaving unfinished assets stranded. Revenue receipts, meanwhile, showed fragility: GST buoyancy underperformed, excise plateaued, and land/stamp duties were volatile.
Strengths: A Thin Cushion
Andhra Pradesh is not without cushions. Its debt-to-GSDP ratio, at around 27–28%, is not the worst in India. Its agriculture and services sectors provide some stability to revenues, and central transfers cushion its deficits. But these buffers are thin. Unlike Karnataka’s resilient IT-led tax base, AP’s fiscal foundation is shakier, and its welfare commitments much heavier.
Risks and Vulnerabilities
The vulnerabilities are stark:
Revenue account dominance: Too much of the budget is swallowed by subsidies, salaries, and pensions.
Debt-for-revenue financing: The golden rule is consistently broken, with borrowings plugging current expenditure.
Hidden liabilities: Guarantees and off-budget debts make true fiscal risk opaque.
Fragile revenues: Tax and non-tax receipts are insufficiently buoyant to sustain high welfare loads.
Entrenched populism: Welfare schemes, once entrenched, are politically irreversible and tend to expand further in election cycles.
Verdict: Borrowed Breath, Fragile Future
Andhra Pradesh’s finances are not simply strained; they are structurally compromised. The CAG’s audits reveal a state financing today with tomorrow’s money. The PFPI gives it one of the lowest scores in the country, highlighting poor expenditure quality, chronic deficits, fragile debt, and extreme contingent-liability risk. The welfare model may yield political returns, but it leaves the state fiscally brittle.
Policy Prescription
- Rebalance expenditure: Set a floor for capital outlay; limit revenue expenditure to sustainable levels.
- Rationalise guarantees: Cap off-budget borrowings; publish an annual Guarantee Risk Statement.
- Boost revenues: Strengthen GST compliance, rationalise excise and stamp duties, and diversify non-tax sources.
- Debt discipline: Restructure borrowings, build sinking funds, and adhere to the golden rule of borrowing.
- Performance audits of welfare: Link schemes to measurable outcomes like school attendance, nutrition, and employment, not unconditional transfers.
Bottom line: Andhra Pradesh is a textbook case of how states can drift into fiscal fatigue. Its story warns that freebies and guarantees, when layered on top of chronic imbalances, don’t just strain the exchequer—they corrode the very foundations of fiscal governance.
(This is an opinion piece, and views expressed are those of the author only)
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