AP’s Debt Wish

I wrote this way back in 2006 I think. The financial situation in the state hasn’t seen much improvement since. In fact, if anything, it has worsened.

During the last fifty years Andhra Pradesh has undergone a comprehensive transformation in every field. From an overwhelmingly agrarian economy, today the state has become a major IT player. Along with it the development discourse has also become tame. The nonchalance with which we took to debt as a means to raise public finance is perhaps a clear indicator of this.

The state today has a debt of over Rs. 80,000 crores. And there is no prospect of it declining or even peaking in the near future. On the contrary, it is likely to grow. The previous government had no qualms to admit that it had no option but to continue to contract debt to carry on its ‘development’ menu. The present government is unable to change tack on this count. This makes it inevitable that it cannot but further contract huge debt in the remaining three years of its tenure. At the end of its tenure the debt could be around Rs. 1,20,000 crores. This government too has a strongĀ debt wish.

Huge debt, its growth, and the mounting debt servicing expenditure have not made the successive governments sit up. The previous government had admitted that debt servicing has become burdensome because it retired low cost debt and contracted high cost debt. Today’s ruling party when in opposition was very critical on this issue. However, what seemed unacceptable while in opposition is now being justified as an inevitable path to development. The only question important for them, they say, is whether it is being used for productive purposes or for buying ‘powder and snow’ as the current Chief Minister characterized the deployment of debt funds by the previous government. Of course, one man’s ‘powder and snow’ is another man’s development. Notwithstanding the fierce differences over other issues, there is a quiet consensus among the two major political formations thatĀ debt is inescapable. Surely, other political parties and many policy analysts do not share this consensus. However, they surprisingly acquiesce in it and do not pull it into the development discourse.

Until Narasimha Rao’s tenure as Chief Minister, agrarian issues dominated the state’s agenda. Vengala Rao’s tenure witnessed the beginning of a perceptible shift of focus to nurturing industry and enterprise. Public debt was nominal in this era.

The idea of industrial catching up in earnest dawned in the early 1980s. The state’s political and bureaucratic policy-makers started to look around to see what was happening in the other states while they rested content with agriculture, routine welfare schemes, and unchallenging governance tasks. The rapid strides made by Tamil Nadu, Maharashtra, Gujarat, Punjab and others in industrial and tertiary sectors gradually became an inescapable point in the development discourse in the state. State looked for investment and generation of resources. Public debt, however, was still not a serious option.

But generating internal resources and attracting investment both from outside as well as from within were slow and painful processes. It was a hard route. Investments did not come by easily. For investment intentions to translate into actual inflows the bureaucracy and the political elite had to demonstrate a vision. And actually show results on the ground. This meant hard work for the politician as well as the bureaucrat. For which both of them were unprepared.

By the mid-eighties, single party’s intra-mural politicking yielded place to fierce competition of a multi-party dispensation. Competitive populism came in on a grand scale. The best element of the bureaucracy was reluctant to redefine its role as agent of development. And the worst element played ball with the political wheeling-dealing. In the event, resource mobilization went unattended to by both the important players in the governance structure. There was neither large scale investment, nor was debt appeared an easy option.

With the advent of international aid and lending agencies in the 1990s, we entered a brave new world. The development discourse has acquired new contours. An entirely new vocabulary and a host of acronyms flooded the discourse. Lending agencies have dressed themselves up as developmental catalysts. State’s decision makers longed for certificates from these outfits. Tough talk from both sides about terms and conditions hardly concealed their eagerness to lend and to borrow. Our political and bureaucratic leadership quickly found out that the tricks that satisfy a lender are easier to perform. Whereas attracting an investor or mobilizing internal resources required hard work.

Argument that welfare alone is the surest route to development found favour with our politico-bureaucratic combine. It yielded attractive political slogans, and had potential to deliver quick electoral benefits. It also satisfied the innate paternalistic instincts of leaders and officers. On the contrary, production, productivity, skill development, nurturing entrepreneurial talent, and value addition activities are goal oriented, measurable, and are slow to show developmental dividends. An unstated consensus is forged about the inescapability of debt. ‘There is no alternative to it if we have to develop, no need to worry about it,’ we tell ourselves.

In fifty years, we have learnt to legitimize debt as the only way to make large funds available to our public exchequer. Shouldn’t we be more concerned about the health of our public finances? Shouldn’t we seriously debate whether debt is inescapable on this scale, and about the ways and need to restrain it? Isn’t it time we reopened and recast our development discourse?

One Response to “AP’s Debt Wish”

  1. March 28, 2011 at 11:32 pm #

    Sir, you rightly said “development found favour with our politico-bureaucratic combine”.

    Micro and small scale industry, which provides maximum employment for the poor and medium class struggles to get 5 to 10 Lakhs of loan from public sector banks without securities. However, these so called bureaucrats gets 1000’s of crores and SEZ’s, which employs hardly 10,000 trained people in each industry.

    I feel, There should be a balance between allocation of funding and taxation policy. Many micro and small scale industries avoid taxation. Many small products (almost all and 99% consumer products) sells in the market without bill/ invoice. people accepts this process, because, they get advantage of 12.5% tax (isn’t it a direct loss to the government?). seller simply gives “Estimate” as bill and we accept.

    We can name many such products like direct grocery shops, road side shops, pan shops, mainly hardware shops, electrical shops, medical shops, what not! you can name as many and these or the products people needs everyday. Govt. never think of including this in strict taxation policy as they will not get votes and people never pays as its a further burden to them. Have a rough estimate of how much the govt. actually losses this amount! may be state’s budget?

    I will give you one such projection. Furniture industry, which is estimated to be ~50,000 cr. Out of this hardly 5 to 10% are imported or ready made furniture, which actually pays tax (atleast on lowered bills). Thanks to the so called real estate boom. The main players in this are Mastri’s or main carpenter/ painters, who employes 10 to 15 small carpenters and earns lakhs of non taxable income. Estimate, furniture for one double bedroom Flat that cost ~2 to 4 lakhs (estimated material cost is 40% only). Every material used in that, including plywood to small nails are unaccounted money. neither the flat owner shows that income nor the Mastry or the plywood shops shows the income. everything is black money (non taxable) or partly taxed. Interiors and furniture makers do at least 4 to 10 flats in a month. most is in black and on each head, 10 to 50 lakhs unaccounted ‘cash’ transaction. Many small products, which are must for the public are not collecting tax and few products, like bikes, petrol, cars, TV’s fridges etc.. are collecting tax.

    The change should come on each person and all of us. All of us should leave the ” Let it be” policy. Must feel as responsible citizen is the only solution. It is the easiest solution But, it is the toughest and hardest to implement. The reason is we are Indians and it became a die hard habit.

    I used to see some good programs by you as an anchor in ETV, which are showing some analysis on problems and the possible solutions. But now a days, no program actually shows the analysis or solution. The TV or media news mainly shows useless news and analysis and fights on useless politicians, which are useless to the general public. No media is projecting useful and real solutions to the public and inspires people by showing what to do.

    Only riches becomes more riches. bureaucrats becomes a family of bureaucrats. The Poor stays as poor and thinks “memu inte”. medium class people thinks ” naakenti?”.

    These problems remains as it is… as there are no one feels finding solution and for some people, problems are the source of earnings (politicians, bureaucrats and mainly media). After independence, there is no good politician born and have guts to remove starting letter ‘A’ in “A’sadyamu”. But I hope, there is always a light after the dark.

    I feels, let the bureaucrats earn, But not to fund, Swiss Banks. At least, they must feel a little patriotic to fund the same amount in the country and in good projects, which helps the people from whom they looted so much. Finally what they need is a 6feet ‘Zameen’. By doing this, at least they can earn some fame and satisfaction of helping others.

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