Partial reformer

Mr Naidu scores on reforms but not on fiscal management

Andhra Pradesh’s economy has two stories to tell. One is of an investor friendly ‘CEO’ chief minister, who has helped the state emerge as the most attractive destination for investors, cornering nearly a third of all foreign direct investment proposals in the recent past. The second is that of a laggard on fiscal management with a disreputable track record of debts and deficit. Chief Minister Chandrababu Naidu deserves full marks for his enthusiastic leadership of reform and change, but he also deserves a rap on the knuckles for poor fiscal management. An Assocham study has found that Andhra Pradesh is the most ‘sought after’ destination for foreign investors. Investors love Mr Naidu because they are not concerned about the state’s balance sheet, rather they are more interested in the number of hurdles they need to jump. However, poor fiscal management can hurt the state’s economy by limiting the government’s ability to invest in what it takes to make the state attractive to investors.
The Comptroller and Auditor General (CAG) of India has pointed out that by the end of the current fiscal, the state public debt is to touch Rs 40,000 crore — a more than five-fold increase in the last seven years. Andhra Pradesh has had to borrow to finance its current annual plan. The state has postponed the repayment of central loans, which have crossed Rs 19,000 crore, and has curtailed its revenue deficit by deferring development expenditure. The objective of promoting social services such as primary education, health care and other urban infrastructure facilities has taken a backseat to mounting expenditure on the establishment. The CAG report points out that the growing internal fiscal crisis has been brought on by a mismatch in government receipts and expenditure. While the CAG has blown the whistle, Mr Naidu’s principal creditor, the World Bank, seems to be reticent to make too much noise, as it is wont to do. Having invested so much of its own credibility in this “reforming” state, the Bank appears to be pussyfooting. If the Bank won’t bell the cat, and if Mr Naidu uses his enormous clout in New Delhi to keep the union finance ministry on a short leash, who will bring fiscal discipline to the state? This Mr Naidu must do on his own.