A Comptroller and Auditor General (CAG) report has pointed out that Andhra Pradesh needs to repay Rs 3.47 lakh crore between 2021-22 and 2030-31, which translates to an annual payment of approximately Rs 40,000 crore. For the 2025-26 period, repayments are expected to be around Rs 28,500 crore. If one takes into account pending corporate liabilities and guarantees, the yearly payment could be around Rs 50,000 crore to Rs 55,000 crore.
Published Apr 25, 2025 | 5:00 PM ⚊ Updated Apr 25, 2025 | 8:59 PM
Welfare programmes place a substantial financial strain on the state budget. Sustaining welfare programmes becomes expensive for governments when their taxation income does not increase sufficiently to meet programme expenditures. (NCBN/X)
Synopsis: Andhra Pradesh’s financial troubles show that past decisions prioritised immediate political benefits over sustainable economic practices. The economy has shrunk because both the public and private sectors face investment challenges.
The financial state of Andhra Pradesh faces an unparalleled debt load, which could fundamentally alter its economic framework.
Perhaps the crux of the entire fiscal profligacy is that Andhra Pradesh’s debt-to-GSDP ratio (it measures how much a state government has borrowed (debt) compared to the size of its economy (called Gross State Domestic Product or GSDP), has ballooned to 34.1 percent, far exceeding the 20 percent limit recommended by the 14th Finance Commission.
The state’s outstanding liabilities stand at ₹4.9 lakh crore as of 2024, with off-budget borrowings adding another ₹5-6 lakh crore to the burden. These figures, drawn from CAG reports and PRS India analyses, paint a picture of a state that needs immediate corrective action.
According to the fiscal health index published by NITI Aayog in 2025, Andhra Pradesh ranked 17th among the 18 states analysed, indicating a high budgetary strain. NITI Aayog (2025) observed that the cumulative capital expenditure of the state on social and economic services decreased by 84 percent and 60 percent, respectively, between 2018-19 and 2022-23, as per PRS Legislative Research. NITI Aayog noted that the state’s revenue was being increasingly locked in committed expenditures, such as salaries, pensions, and interest payments. Committed expenditure as a percentage of revenue receipts had increased from 58 percent in 2018-19 to 65 percent in 2022-23.
NITI Aayog (2025) also noted that the growth rate of the state’s revenue had come down from 17 percent in 2018-19 to 10 percent in 2022-23. It recommended the state focus on enhancing the efficiency of capital expenditure, optimising committed spending, and diversifying revenue sources for greater resilience. It is also important to highlight the fact that nearly 40 per cent of the state’s revenue expenditure now goes toward interest payments and salaries, leaving very few resources for capital investments or social programmes.
Chief Minister N Chandrababu Naidu’s recent declaration that the previous administration “brought the state to ruin” exemplifies the problem. While it is abundantly clear that the YSRCP government increased welfare spending without the necessary revenue growth, the TDP’s record hasn’t been exemplary either.
By 2025-26, the state’s overall liabilities are expected to surpass ₹11.2 lakh crore, which includes more than ₹6.3 lakh crore from off-budget borrowings undertaken by public sector entities, yet not included in the official state accounts.
The magnitude of this fiscal crisis becomes clear when one examines that the state’s official debt in 2024 reached approximately ₹4.9 lakh crore. The current debt amount exceeds twice the level recorded during the state bifurcation year of 2014. The primary issue stems from the off-budget component that has surged rapidly to represent almost half of the total debt burden. The primary use of these borrowings has been for recurring expenses rather than building capital assets, which reduces the possibility of financial stability over time.
Populist schemes funded by debt have received repeated government support despite their ongoing high costs. Asset-building received only minimal funding from the total borrowings. The state will need to allocate nearly ₹55,000 crore for interest payments by 2025, representing almost 20 per cent of its revenue receipts, demonstrating significant repayment stress.
While Andhra Pradesh has accumulated a large debt, this is partly because government entities have raised loans without legislative approval through off-budget borrowings, which are comparable to official debt figures. The Comptroller and Auditor General, along with additional fiscal oversight bodies, have expressed concerns about the model’s long-term viability. The state exchequer must manage these debts without the benefit of regular legislative review. These financial practices conceal actual liability levels, compelling the state to borrow repeatedly to settle existing debts, which restricts fiscal flexibility.
Among the South Indian states, Andhra Pradesh shows the most concerning fiscal condition. Together with off-budget liabilities, the debt-to-GSDP ratio of Andhra Pradesh stands as one of India’s highest figures, officially at 34 percent. Both Tamil Nadu and Karnataka exhibit less fiscal stress in proportion to their economic size, along with improved capital expenditure profiles.
The recent borrowing trend in Andhra Pradesh shows an emphasis on welfare disbursements, whereas Tamil Nadu and Karnataka continue to make heavy investments in infrastructure and social capital. The long-term growth prospects may be affected by this divergence. The budget analysis reveals a growing disparity, as the portion of capital expenditure allocated to Andhra Pradesh is decreasing. Development spending in infrastructure, irrigation, and educational sectors has encountered significant reductions.
The business environment is now experiencing the adverse effects of debt overhang. Long-term industrial investors prioritise stability while also seeking clear fiscal transparency and policy continuity from their investment environments. The inconsistent performance of Andhra in this sector damaged its reputation. The most significant case of financial instability is the default of interest payments on bonds issued for the development of Amaravati, slated to be the capital.
Despite these challenges, Andhra Pradesh is going ahead with the approval of major industrial projects. The state offers several advantages to investors through its coastline and ports, and its rich resource base. New reports indicate that investment proposals worth over ₹3 lakh crore are in progress, which could result in the creation of thousands of jobs.
However, implementing these investment proposals requires both the necessary infrastructure and approvals, as well as proof of the state’s ability to meet its financial obligations.
Welfare spending is a significant contributor to Andhra Pradesh’s fiscal problems. The state has demonstrated leadership in developing welfare programmes, which include direct cash transfers, free electricity for consumers, as well as subsidised farming inputs and exceptional support for farmers and women. The existence of strong political support for these programmes allows them to enhance service accessibility for various marginalised communities.
These welfare programmes place a substantial financial strain on the state budget. Sustaining welfare programmes becomes expensive for governments when their taxation income does not increase sufficiently to meet programme expenditures.
The current task requires maintaining essential welfare programmes alongside investments in growth-enabling infrastructure without one overshadowing the other. The state will face growing difficulties maintaining this balance without either increasing revenues or adjusting current schemes.
The current government administration has made clear its intention to reestablish fiscal discipline. The proposed measures consist of streamlining revenue expenditure while enhancing tax collection efficiency and cutting dependence on freebie politics. The discussion includes plans to monetise state assets alongside expanding the sources of non-tax revenue.
Andhra Pradesh’s financial troubles show that past decisions prioritised immediate political benefits over sustainable economic practices. The economy has shrunk because both the public and private sectors face investment challenges.
The path ahead requires tough decisions: the state must streamline welfare programmes, strengthen tax compliance, and eliminate wasteful subsidies to expand capital investment. These steps will be challenging politically, but they must be carried out immediately to address the fiscal problem.
Once the state government commits to fiscal realism, it will have the ability to unlock its economic potential. The solution requires both an understanding of the problem’s magnitude and immediate, decisive action to solve it.
(K Giriprakash is a seasoned journalist with over 30 years of experience in leading newsrooms in India and internationally. He is also the author of ‘The Vijay Mallya Story’, a definitive biography tracing the former liquor baron’s dramatic rise and fall).
(Views are personal. Edited by Majnu Babu).
