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




Andhra Pradesh Economy - revised estimates 2008-09

As part of the Andhra Pradesh Fiscal Responsibility and Budget Management

(APFRBM) Act – 2005, the State Government has to prepare a Macro-

Economic Framework Statement to be laid down before the Legislature.

Accordingly, the Macro-Economic Framework Statement detailing macro-

economic picture of the state is presented below:


The GSDP at constant (1999-2000) Prices for the year 2008-09 (Updated

Advance) is estimated at Rs.2,52,318 crores as against Rs.2,39,102 crores

for 2007-08 (Quick Estimates) reflecting a growth of 5.53%. During last Five

Years, the GSDP of A.P on the average recorded 9.14%, and higher than the

Annual Average Growth of GDP (All India) which is 8.49% only. Further,

during last three years, the GSDP of AP was consistently more than 10%,

which itself is a record. With more than 10% Growth for the past 3 years and

due to this high Base effect, further Growth Rate in during 2008-09 is only

5.53%. Inspite of Global recession and negative growth trends in the major

world economies, our State is able to continue the growth path along with the



The sectoral composition of GSDP growth for 2008-09 in Service sector with

10.06% has maintained the same growth tempo, while the Agriculture sector

with 2.27% and industry sector with 0.12% have recorded little lesser growth

rate. At All India level (GDP), the Sectoral Growth rate in Service sector is

9.67%, while in Agriculture Sector, it is 1.60%. In these both sectors, our

State's Growth rate is higher than All India level. The relative decline in

Agriculture growth during 2008-09 is due to a very high base effect during the

previous years especially last year i.e. 14.85%. However, the foodgrain

production has reached a peak of 204.04 lakh tones during the year 2008-09.


The Per Capita Income figure gives a better idea of the standard of living of

the people. The Per Capita Income of Andhra Pradesh at current prices is

estimated at Rs.39,597 in 2008-09 as against Rs.35,864 in 2007-08. At

current prices, the Per Capita Income has increased by 10.41%, while at

constant (1999-2000) prices, it has gone up from Rs.26,195 in 2007-08 to

Rs.26,983 in 2008-09 registering a growth rate of 3.01 per cent.


The growth of the economy of the State also depends on its rate of capital

formation. The gross fixed capital formation in Andhra Pradesh has shown a

growth of 23.69% during 2006-07 and as the percentage of GSDP it works out

to 28.96%. 


Interest: During the year 2008-09 Reserve Bank of India has decreased CRR

to 5% in its Monitory policy to give fillip to the economy. The Bank rate, Repo

rate and reverse Repo rate are also decreased to 4.75% and 3.25%

respectively. These decreases have made Market Borrowings for the State

little bit cheaper. The State is able to raise resources at competitive rates from

the market due to the confidence it enjoys in the financial markets and good

ratings by rating agencies. The State is implementing interest subsidy







programmes (Pavala Vaddi) to needy sections in the State to increase

economic activities and to make poor and downtrodden active participants in

the growth process. The State Government has extended this Pavala-Vaddi

Scheme to farmers, small entrepreneurs, Weavers.


Public Finance: The finances of Government of Andhra Pradesh are robust

due to efficient public finance management. The State is well in advance in

eliminating revenue deficit and achieving other fiscal targets enacted in

APFRBM Act, 2005. The State revenue receipts stood at Rs.69.685 crores in

2008-09 (RE) of which the State's own revenue is Rs.44,138 crores. The

revenue receipts under State's own taxes during the year 2008-09 (RE) stood

at Rs.35,739 crores as against Rs.28,794 crores in the previous year

registering a growth rate of 24.12 %. Total expenditure (revenue + capital)

stood at Rs.85,363 crores for the year 2008-09 (RE).  The capital expenditure

constituted 20.78% of the total expenditure (revenue + capital).  Revenue

Surplus for 2008-09 (RE) is Rs.2,066 crores. The Fiscal Deficit is Rs.10,427

crores which 2.81% of GSDP.


January 26, 2010

AP governor Republic day Speech - contains some figures note down

Andhra Pradesh targets Rs.690 bn IT exports by 2012

2010-01-26 14:30:00

Andhra Pradesh has set a target of IT exports of Rs.69,000 crore (Rs.690 billion/$15 billion) and 1.2 million jobs in the IT sector by the end of 2012, Governor E.S.L. Narasimhan said Tuesday.

Addressing the Republic Day parade at Secunderabad Parade Ground here, he said the IT exports from the state were expected to jump from Rs.32,000 crore in 2008-09 to Rs.36,000 crore in 2009-2010.

Narasimhan said the state government promoted several exclusive IT SEZs and so far created nearly three lakh jobs directly and another five lakh jobs indirectly. Hyderabad had so far attracted 1,300 IT companies.

He pointed out that the estimates of the first half of 2009-10 indicate that the state was recovering fast from the impact of recession. 'While economy of India is growing at 6.99 percent, our state economy is expected to register a relatively impressive rate of 7.28 percent in spite of severe drought and unprecedented floods,' he said.

Narasimhan said the state achieved impressive 9.14 percent growth which was higher than the national average in 2004-09. In spite of global economic crisis, the government helped the GSDP to grow at constant prices at modest rate of 5.53 percent during 2008-09.

Agriculture and services registered a growth rate of 2.27 percent and 10.06 percent respectively which was higher than the national average.

The governor pointed out that agriculture sector registered phenomenal growth during last five years. The yield has gone up from 135 lakh tonnes in 2004-05 to 204 lakh tonnes in 2008-09.

The governor said the state was 'set for another year of adequacy in food production if not a bumper surplus'.

On account of shortage of rainfall and floods in Krishna River the advance estimates indicate the production during Kharif 2009 will be slightly low at 68.40 lakh tonnes compared to normal of 97.10 lakh tonnes. 'In order to compensate this loss of production in Kharif, 85.54 lakh tonnes against 66.90 lakh tonnes are targeted during Rabi 2009-2010,' he said.

Narasimhan listed the development and welfare schemes of the state government. He claimed that the state stood first with the disbursement of six lakh acres to the landless poor.

The government is also implementing the ambitious 'Jalayagnam' programme under which 86 irrigation projects were taken up with a total budget outlay of Rs.179,679 crore. So far, a sum of Rs.48,747 crore was spent since 2004.


January 24, 2010

Rostow's Stages of Growth Model - APPSC group 2 - Chpater 5 - indian economy

Main points of Rostow's stages of growth model:

-Rostow's stages of growth model is of the Neo-Classical tradition.
-The model takes a linear view of development, this means that countries are believed to develop in the same way over time.
-It is a structuralist model, it analyses development as the result of complex interactions between a number of different societal parts.

Rostow believed that economies develop by going through a number of stages. He attempted to define the characteristics of each of the 5 stages of development.

Traditional Society Stage
-Economic activity is on a subsistence basis, output (food etc) is consumed by those who produced it rather than traded. Economic activity is dominated by agriculture and is labour intensive.

Transitional Stage
-This stage is when a society has the preconditions for takeoff (the characteristics a society must have before it can start to grow quickly such as with the UK industrial revolution) in place but has not yet entered a period of high growth. Trading increases supported by an emerging transport infrastructure, savings and investment grow and entrepreneurs emerge.

Take Off Stage
-Industrialisation takes place, workers transfer from the agriculture to manufacturing. Growth is concentrated in to certain parts of the country and in one or two industries (for example, cotton processing in Manchester during the industrial revolution). New political and social institutions emerge to support industrialization.

Drive to Maturity Stage
-The economy diversifies from the industries that originally drove growth. The massive poverty caused by the Take Off Stage starts to be reduced.

High Mass Consumption Stage
-The stage that countries reach once they have developed. Rostow, writing in 1960, believed that this was the stage which Western countries were in. Living conditions are good and the economy is based on the consumer society.

Limitations of Rostow's Stages of Growth Model:

-The Rostow starts with the assumption that countries will develop along the same path, that countries cannot skip stages, do stages in a different order. Splitting the process of development into stages may be simplifying what actually occurs.
-The model is ethnocentric, it is based on American and European history and shows American high mass consumption to be the end result of development.
-The model assumes that capitalist development is the only way to achieve economic development his model represents a "non-communist manifesto".


January 22, 2010

Rostow’s Stages of Economic Growth - Indian Economy - Group2 - Chapter 5

W.W. Rostow, American economic historian described the

transformation of countries from underdevelopment to development in

terms of stages of growth. He is of the view that all countries must pass

through the following stages.


1) The traditional society ;

2) The transitional society ;

3)The take- off stage ;

4) The mature stage and ;

5) The age of high mass consumption


The traditional society will be custom-bound and tradition-oriented.

There will be economic backwardness. The poor countries of today are

good examples of traditional society. In short, the factors which are

essential for economic growth will be missing from such a society.


In the transitional society, the conditions for take-off stage will be

established. During this stage, the force of customs and traditions will

become less ; there will be economic motivation, and there will be

improvements in physical and social infrastructure. When once an

economy attains the take–off stage, there will be self – sustaining growth.

The take-off stage refers to a situation where an economy transforms

itself from a predominantly agricultural to a predominantly industrial

society. For an economy to attain the take-off stage, it must make an

annual investment equal to 20 – 25 percent of GDP mobilized from its

own savings. The take-off stage was made possible in some countries

by leading sectors like railways and defence. After the take- off stage,

when the economy attains self sustaining growth, it enters the mature

stage. During this stage, the government has to make some basic decisions.

As there will be abundant resources and goods, it has to divide whether

it has to use them for strengthening the nation into a strong and powerful

state militarily or to use the resources for improving the welfare of the

people. The final stage is the age of high mass consumption. During this

period, people will consume all kinds of goods especially durable goods

like cars on a mass scale.

Rostow's stages of economic growth are only broadly true. All nations

have not gone through the order in which he has described the stages.



Characteristics of underdeveloped countries - Indian Economy Topic - chapter -5

Characteristics of underdeveloped countries

The terms "underdeveloped", "less developed", "backward", and

"poor" and "developing" are generally used to refer to low income

countries. The countries which have low standard of living because of

their low per capita incomes are known as underdeveloped countries.

Countries are classified into developed and underdeveloped countries

according to their per capita income. For example, in 1949, high income

countries with 18% of world population enjoyed 67% of world income,

whereas low income countries which had 67% of world population got

only 15% of world income. The rich countries include United States,

Canada, Western Europe and Australia. The poor counties cover most

of Asia, Africa, south eastern Europe and Latin America. And there were

middle income countries with a population of 15% which got 18% of

world income. They consisted of countries such as Argentina, South Africa,

Israel and former soviet Russia. The poor countries are collectively

referred to as the Third World.

Even in 1973, the Third World with 77 percent of the world population

subsisted on only 22 per cent of the world income. Even the meagre

income is maldistributed within these countries and the bulk of the

population live in abject poverty. According to Meier and Baldwin, an

underdeveloped country has six basic economic characteristics. They

are : (1) it is primary producing ; 2) it faces population pressures ; 3) it

has underdeveloped natural resources ; 4) it has an economically backward

population ; 5) it is capital deficient and 6) it is foreign trade oriented.

1) Primary production: The UDCs produce mostly raw materials

and foodstuffs. A majority of the population will be engaged in agriculture.

Some poor countries depend upon non – agricultural primary production

(eg. minerals like tin, copper, aluminium and petroleum). And agricultural

productivity is low. So rural incomes are low. There is pressure of

population on land.

2) Population pressures: Generally, there is over – population in

many poor countries. Population pressures take many forms. First, for

example, they have rural underemployment. This is sometimes referred

to as disguised unemployment. That is, there will be more number of

people working on the farm that what is really necessary. The marginal

productivity of the extra hands will be almost zero. Second, high birth

rates create a large number of dependent children and lastly falling death

rates with high birth rates will bring about a large increase in population.

3) Underemployment: Natural resources in poor countries are

underdeveloped. They are unutilized, underutilized or misutilized.

4) Economic Backwardness : The economic backwardness of the

population in the poor countries is reflected in low labour efficiency, factor

immobility, lack of entrepreneurship, economic ignorance and so on. The

population is ruled by customs and traditions. And people are not

"economically motivated". The tax system is marked by inefficiency in

collection and there is tax evasion. The governments in these countries

are generally "weak, incompetent and corrupt".

5) Capital Deficiency : Capital deficiency is an important

characteristic of poor countries. Capital formation or investment is low

in these countries. According to Ragnar Nurkse, low capital formation is

one of the basic causes of poverty in these countries. Low capital formation

leads to low productivity. Low productivity results in low incomes and

low incomes result in low savings and low savings lead to low capital

formation. Thus, it forms a vicious circle of poverty.

6) Foreign Trade Orientation : Some of the poor countries depend

heavily upon foreign trade. For example, in 1952, cotton contributed

about 90 percent of foreign exchange earnings of Egypt. A risk involved

here is if there is some serious economic problem in the importing nation,

the country which depends on export of one or two commodities will be

affected badly. And in the early stages of development, UDCs depended

upon imports.

India as UDC : India, has most of the typical characteristics of an

underdeveloped country. Nearly 65 to 70 percent of its population

depends upon agriculture. And agricultural productivity is low. There are

population pressures. There is underdevelopment of natural resources

and economic backwardness. Until recently, there was capital deficiency.

That is why, we had to borrow heavily from foreign countries and

international institutions like I.M.F. and World Bank. So we may describe

India as a typical underdeveloped country. Nowadays, they call it a

developing economy.

Role of the State in Economic Development

The State plays an important role in the economic development of

nations. Japan, after 1870 and soviet Russia after world war I are good

examples. But the economic development of the U.K. and the U.S.A.

took place under a system of market economy and laissez faire policy.

For underdeveloped countries, laissez faire policy is a luxury. The State

has to play the role of an entrepreneur in the underdeveloped countries.

Nowadays, it is agreed that the governments in these countries have to

play a dominant role in implementing plans for economic government. In

fact, government is regarded as a factor of production in poor countries.

For example, India is a mixed economy with a public sector and private

sector. Until recently, the public sector played a major role in economic


Through Five Year Plans, the State has been making attempts to

achieve the goals of increasing economic growth, rapid industrialization,

expansion of employment opportunities and reduction of inequalities of

income and wealth.

The government plays a very big role in the field of social services

like education and health. Investment in education and health promote

human capital formation, which is as important as physical capital

formation. Education and health increase productivity of labour.

These are the days of globalization, liberalization and privatization.

We invite foreign investment on a large–scale. But they want good physical

infrastructure like good transportation, postal and telecommunications,

power facilities, and water supply. All these things are referred to as

social overhead capital. The government has to make huge investment in

these things. Not only that, there is shortage of entrepreneurs in these

countries. So the government has to encourage them.

There is shortage of foreign exchange in UDCs. The government has

to take steps such as promotion of exports, making investment attractive

for foreigners through fiscal measures.

If development is left to market forces, there will be not be balanced

regional development. So the government formulates policies and

programmes in such a way that there is a balanced regional development.

And the State has to regulate and control monopolies. Thus, the State

has to play a dominant role in economic development.