January 29, 2010

Andhra Pradesh Economy - revised estimates 2008-09 - Part 2


As part of Fiscal Responsibility and Budget Management Act, 2005 the State

Government is required to prepare a medium term Fiscal Policy Strategy

Statement to be laid before the Legislature. Accordingly the Government have

designed a Fiscal Policy Strategy Statement based on which a fiscal

correction path is drawn.


Adoption of rule-bound fiscal policy by enactment of Fiscal Responsibility

Legislation has provided impetus to Government of Andhra Pradesh in

process of attaining fiscal sustainability. Though the State has embarked on

fiscal correction path, the transition does not adversely impact capital outlay

and social sector expenditure. In order to make the process of fiscal

consolidation durable and sustainable, adequate investment in economic

infrastructure and spending on social services is essential.


The Government of Andhra Pradesh is one of the most successful in fine

tuning the State Finances with FRBM indicators. The State Government has

achieved fiscal targets stipulated in FRBM Act, 2005 well in advance to the

targeted year of 2008-09. As mandated in the above Act, the State

Government has to eliminate Revenue Deficit by 2008-09 by reducing 0.32

percentage points in GSDP every year and the same time fiscal deficit has to

be brought down to 3% of GSDP by reducing  0.25 percent points every year.

The State has eliminated revenue deficit by 2006-07 itself and got a revenue

surplus of Rs.2,807 crores and the fiscal deficit has also been brought down

to 2.04% of GSDP from 3.87% in 2004-05. By continuing the same trend a

revenue surplus of Rs.158.99 crores has been achieved in 2007-08 and

Fiscal Deficit also maintained at 2.68% of GSDP. 


The State Government's fiscal discipline yielded an amount of Rs.2022 crores

as interest relief and Rs.2592 crores as debt relief from Government of India

so far. The State Government is confident in continuing the fiscal discipline in



The State Fiscal Policy strategy is to control revenue expenditure by cutting

administrative costs with the use of available modern technology on the one

hand and mobilize enough resources by plugging loopholes on the other

hand, so as to enhance investment in productive capital assets and social

sectors in order to attain sustainable economic growth.


Tax Revenue:


The taxation policy of Government of Andhra Pradesh is aimed at moderate

levels of taxation with emphasis on efficient and effective tax administration.

The desirable path to fiscal correction lies through financial empowerment i.e.,

by expanding the scope and size of revenue flows into the budget. Our

strategy for revenue augmentation is by improvement of tax administration,

facilitation of revenue buoyancy, minimizing of transaction costs and






rationalization of tax structure. Hence, the focus is on streamlining and

strengthening existing tax and non-tax collection, mechanism and plugging of

revenue leakages. 


State's own revenue grew from Rs.35858.18 crore in 2007-08 to Rs.44138.11

crore in 2008-09 (RE) and is budgeted to increase to Rs.53610 crore in  



During the preceding three years, tax collection has increased by 21% on

average every year due to the robust growth of state's economy and reforms

in tax administration. However, considering the affect of global economic slow

down on State economy, growth rate in tax revenue for B.E. 2009-10 has

been estimated at 13.78% over R.E. 2008-09.


The Government is taking all measures to make the VAT system more user-

friendly and at the same time proposes to strengthen audit and enforcement

to check the evasion of Taxes and mobilize additional revenue. 


Government have reduced the stamp duty by 1% payable in respect of

Registration of sale deeds in favour of women under Article 47-A of Schedule

I-A to the Indian Stamp Act, 1899 with effect from 27-10-2008.


Government have exempted the Stamp duty of 5% payable as per Article    

47-A(d) of Schedule I-A to the Indian Stamp Act, on the sale deeds in respect

of residential flats/apartments including semi finished structures. The

exemption is applicable to flats/apartments measuring upto 1200 sq. ft or

below including common area excluding parking area with effect from           

1-1-2009 to 30-12-2010.


Excise Department, which earns revenue by way of excise Duty, license fee

etc. realized revenue of Rs.5038 crores up to February 2009 recording a

growth of 43.52% over corresponding period in the previous year. There are

about 6500 retail vends (A4 shops) and about 1200 restaurants licensed to

sell liquor in the State. This number is kept constant over last 5 years and

there is no proposal to increase the number. During 2008-09 no changes

were made in the tax structure of prohibition and excise department. The

Government strategy to augment revenue from excise is plugging the

loopholes by controlling illicit distillations and smuggling of arrack from across

the borders.


The Government collects tax from Motor Vehicles under the provisions of

Andhra Pradesh Motor Vehicles Taxation Act 1963 and Andhra Pradesh

Motor Vehicles Rules 1963 and notifications issued there under. For the year

2008-09, Government has fixed a target of Rs.2290 crores for realization. The

Government collected an amount of Rs.1658 crores upto February, 2009 with

a growth rate of 12.56% over the corresponding period of previous year. The

Government is expecting to collect an amount of Rs.2315 crores in 2009-10.











Non-Tax Revenue:


The State's own Non-tax Revenue is estimated at Rs.8398 crores in R.E

2008-09 which includes the revenue from mines & minerals Rs.1917 crores

and Debt Relief Rs.703 crores. State's own Non-tax Revenue is estimated at

Rs.12,946 crores in B.E. 2009-10 which includes Rs.3,000 crores under Sale

of Land, Rs.2,450 crores under mines & minerals and Rs.923 crores towards

Debt Relief.




The strategy of Government's expenditure management is to redirect

government expenditure away from less productive schemes towards

investments in improvement of quality of life of people and strengthen their

social and economic assets through improved health, education and other

social services and to strengthen operation & maintenance expenditure to

maintain productivity levels of existing public infrastructure. The policy

emphasizes increased spending on social sectors, including rural

employment, education and health. Thus the focus of the government is to

moderate increases in non-plan revenue expenditure and augment capital

outlays. Further, resource mobilization for taking up developmental projects

for economic and social sectors assumes paramount importance. 


The Government Strategy in revenue expenditure is to control non-

development expenditure mostly administrative services and debt services

expenditure so as to enhance development expenditure on social sectors.

During 2004-05 non-development expenditure under revenue account is

43.54% of total revenue expenditure where in the administrative expenditure

is 6.25% and debt services expenditure is 22.65%. Non-development

expenditure was gradually reduced to 29.41% in 2008-09 (RE). Expenditure

on debt services is reduced to 12.95% in 2008-09 (RE). Development

expenditure under revenue account gradually increased from 56.46% of total

revenue expenditure in 2004-05 to 70.59% in RE 2008-09.


 The Government is of the view that the subsidies are not a drain on State

Finances as they are the need of hour to provide food, shelter and wage

employment to all poor and vulnerable sections in the society. The State

Government   is spending sufficient amount on both social subsidies like rice

subsidy and economic subsidies like power, agriculture inputs, housing etc. 

The Government has decided to increase quantity of rice from 4 Kg. per head

to 6 Kg per head under Rs.2/- per Kg rice scheme in the current financial

year. The food subsidy is estimated to cost Rs.3,500 crores to the State

exchequer during 2009-10.  The State Government believes that, it is it's

responsibility to ensure food security to the poor people living below poverty

line. The Government is continuing free power to agriculture sector for the 6th

consecutive year and also decided to increase supply time from 7 hours to 9

hours per day for which an amount of Rs.6,040 crores provided in the BE











The Government gives utmost importance to expenditure in sectors which

would create further assets. Every year the State Government is increasing

Capital share in total expenditure. During 2004-05 capital expenditure was

Rs.7007 crores. This is increased to Rs.17,744 in 2008-09 (RE) and to

Rs.18,843 crores in BE 2009-10. The capital expenditure and GSDP ratio is

increased from 3.32 % in 2004-05 to 4.78% in 2008-09 (RE) and to 4.61% in

B.E. 2009-10.



Debt Management:


Effective debt management is vital for fiscal management. A pro-active

approach to debt management is essential for better budget formulation that

is consistent with the medium term fiscal policy. The main objective of debt

management in the State is to ensure the financing of the budget and

refinancing of the debt is done at the lowest possible cost in medium- to long-

term, consistent with a prudent degree of risk.  Thus the strategy is geared to

reduce not only the cost of funds borrowed, effectively, but also to reduce

significantly the debt service costs over the medium term period. Over the

past three years Government had swapped high cost loans and exercised call

option wherever possible to save considerably on interest costs.


The debt, which stood at 31.35% of GSDP in 2004-05, declined to 25.12% in

the year 2007-08 and is expected to be 24.91% in the year 2008-09 (RE).



Guarantees Assessment:


The stock of contingent liabilities in the form of guarantees given by the

Government has declined from 8.36% of GSDP at the end of 2004-05 to

5.14% of GSDP in 2007-08 and is expected further decline to 4.51% of GSDP

in 2008-09 (RE). The guarantees outstanding are within the prudential limits.

The Government is also committed to transparent reporting of contingent




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