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.
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
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 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.
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
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
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).
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