Both Naidu And Jagan Promise Freebies To Bankrupt Andhra; The Case For Special Category Status Falls

by R Jagannathan - Apr 9, 2019 01:10 PM +05:30 IST
Both Naidu And Jagan Promise Freebies To Bankrupt Andhra; The Case For Special Category Status FallsJagan Mohan Reddy and Chandrababu Naidu.
  • It is now pretty much clear from what Chandrababu Naidu and Jagan Mohan Reddy have promised, that Andhra does not deserve special category status.

If you think the Congress party’s minimum income scheme for India’s poorest 20 per cent of households is fiscally irresponsible, you haven’t been to Andhra Pradesh. Here, both the prime contenders for power, Chandrababu Naidu’s Telugu Desam Party, and Jagan Mohan Reddy’s YSR Congress, have announced giveaways and freebies that will bankrupt the state if they ever hope to keep their promises.

The Congress party’s NYAY scheme (Nyuntam Aay Yojana) promises Rs 72,000 annually to the bottom 20 per cent of the poor, but Naidu has promised Rs 2 lakh per family annually, nearly three times as much as what a party that hopes to come to power at the Centre has done. And, not to be left behind, Naidu’s principal rival for power, Jagan Reddy, has promised Rs 12,500 to Rs 1 lakh per farmer under a Rythu Bharosa scheme, with tenant farmers getting the lower amount. And these are only the big schemes announced by the two parties. Both parties are also promising 30-45 lakh free houses, and waivers of existing loans on government-sponsored affordable housing projects. In 2014, it was massive farm loan waivers. This time it is a massive home loan waivers.

State officials are now fretting about how this kind of largesse will be funded. They estimate that if either party wins – one of them surely will – the state is looking at an annual drain of Rs 150,000-200,000 crore. In 2018-19, Andhra Pradesh’s annual budget had a total expenditure bill of Rs 1.91 lakh crore. The freebies promised will more than double expenditures without any commensurate gain in revenues.

This kind of desperation to retain power should bring into question the seriousness of both parties’ political demand for special category status for Andhra Pradesh. Naidu left the National Democratic Alliance because Narendra Modi did not grant his state special status, and Jagan Reddy forced Naidu’s hand by raising the temperature on the same issue.

Anybody with an ounce of commonsense should be asking both politicians a simple question: if you can promise Rs 1.5-2 lakh crore as freebies, why do you need the additional crutch of being declared a special category state? If you are rich enough to finance new freebies that dwarf your entire year’s budget, why ask for tidbits from the Centre?

Currently, it is only hill states and the North-East (11 states in all) that get special category status. The main benefit of being declared a special category state is that you get 90 per cent of the outlays on central schemes as a grant, and the remaining 10 per cent comes as an interest-free loan. General category states get 30 per cent as grants and 70 per cent as loans. There are other minor benefits, too, like debt swapping schemes to lower the costs of borrowing, or being allowed to use money left unspent this year to be used the next year.

If Andhra Pradesh gets special status, it would be a travesty, for it would mean re-routing scarce central resources away from small states with special problems to a major state with a profligate government.

If Andhra Pradesh gets special category status, it would essentially mean that the money will be used to bankroll fiscal profligacy of a mind-boggling kind. It would mean that the Indian taxpayer will be footing the bill for the re-election promises of two state-level parties.

It is clear from what the two parties have promised, that Andhra does not deserve special category status.

Jagannathan is Editorial Director, Swarajya. He tweets at @TheJaggi.
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