Home »  Magazine »  Business  »  A State Of Crisis

A State Of Crisis

The Naidu government struggles to save the economy from ruin

A State Of Crisis

The Government considers itself as a trustee of public money.... But here, as in many other countries, one man's food is another man's poison. Diverting non-development expenditure to development sectors could hurt the interests of an individual or sections of people. Conversely, raising resources for funding projects could result in burden to the person or section to whom the incidence falls. In such a 'Catch 22' situation, the golden rule that should guide us is the Benthamite principle of serving the greatest good of the greatest order. —White Paper on State Finances, Andhra Pradesh Government

BENTHAMITE or not, the Chandrababu Naidu-led Telugu Desam Government in Andhra Pradesh is in deep trouble. The state's economy is on the brink of collapse. Three highly publicised schemes—subsidised rice at Rs 2 per kg, near-free agricultural power, and of course, total prohibition—have left a gap of Rs 4,000 crore between earning and expenditure. And the Government is at its wit's end to find a way out.

Of course, the Naidu Government claims that the reasons for the crisis were the wrong-doing and haphazard policies of previous governments. But very few buy that line of reasoning. And with the Deve Gowda Government refusing to grant more than Rs 350 crore to bale Andhra Pradesh out, the Naidu regime appears to have thrown in its towel and mounted on an unprecedented exercise to elicit public opinion on further course of action to save the state from bankruptcy. A series of meetings is being held with the state's intelligentsia and opinion-makers on the Government's policies. A two-day session of the assembly to discuss the financial position has also been called.

This fortnight, the Chief Minister also released a White Paper entitled State Finances: The Factual Position. Although it states that "the present financial stress is not due to the action or inaction of any one person or the result of any single scheme or policy of the government but a cumulative result of the decisions of different governments in the last decade and more", it also confesses that the state is in a Catch 22 situation. 

Strongly refuting Naidu's claims policies of past governments, K.Rosaiah, former finance minister and currently president of the Congress committee, says: "Governments all over the world examine the workability and financial requirements of a scheme before putting it into practice, but the Naidu Government announced the schemes as political promises and is now trying to test their feasibility." Besides, he points out, prohibition was introduced through an ordinance instead of an act and the Congress and the BJP had walked out of the assembly when the ordinance was placed for approval, on the ground that the issue was not referred to a select committee. Instead of taking steps to resolve the crisis, the Government is eliciting public opinion on the schemes, complains Rosaiah. 

The Government, on the other hand, claims that it's not sitting pretty. Hinting that it has a contingency plan ready, state finance minister P. Ashok Gajapathi Raju says: "It is foolish to think that the Government is not thinking about something which has gone to such proportions. The Government just wants to accumulate public opinion on its functioning and include people in their state's administration for the long-term benefit of the state."

But the clock is ticking faster and louder. Already, Naidu has announced that his Government may soon be unable to pay salaries. According to the White Paper itself, the average cost of generating and distributing one unit of electricity is about 183 paise, and the Government recovers only 3 paise for it from the agricultural sector. The grim irony in all this is that while meant for the poorer sections, all these schemes are being misused rampantly. Take rice. The Andhra Government issued almost one crore white ration cards (for subsidised rice) for a total population of about 7 crore. So at an average of five members per card, a good five crore were covered by the scheme which was meant specially for the poor. The reality is, say observers, that there are lakhs of bogus ration cards and widespread black marketing of subsidised rice.

As far as prohibition goes, liquor is widely, though not openly, available at a premium. And the crackdown in Andhra Pradesh has led to a flourishing bootlegging business and, according to several opinion-makers with whom the Government is now inter-acting, "everyone is making money, except the Government". Says P.N.V. Nair, editor of The Deccan Chronicle: "The entire purpose of prohibition has been defeated as liquor is still available but its quality is suspect. The poor—at whom the scheme was targeted—are still spending money on liquor, now even more bootleggers are thriving. And this is happening at such a large cost to the Government." Bidar in neighbouring Karnataka, 120 km from Hyderabad, wears a carnival look every weekend with Andhraites flocking there for their weekly dose of ethyl alcohol. Running buses and taxis on the Hyderabad-Bidar route is currently the sunrise industry in the state.

There are indirect cascading effects too. Tourism is on the decline, the otherwise flourishing film industry is folding and industry's wrath due to loss of business is visible. Leading hoteliers moan that their revenues have taken a severe beating. Total prohibition as a law has never succeeded anywhere in the world. In the state itself, there were repeated attempts to impose total prohibition since the early 1950s till about 1969, when all political parties came to the conclusion that prohibition had failed, and withdrew it.

All of which has left the TDP Government stuck between the devil and the deep sea. If it continues with prohibition, the drain on finances will continue; if it withdraws the ban, the women's groups and the opposition, including NTR's widow Lakshmi Parvathi will go to town. Similarly, increasing the cost of rice and charging the agro-sector for power would be disastrous in terms of the Government's political future. The last Congress government paid dearly at the hustings for raising the price of rice from Rs 2 to Rs 3.50.

Naidu may have now found a way to wriggle out of at least the prohibition problem. By holding meetings with different sections of people who have been speaking against prohibition, the Government may be trying to create a situation where the lifting of prohibition would appear to have been thrust upon it.

The feeling is now widespread in the state that the Government is mentally prepared to lift total prohibition and impose a partial prohibition through a permit system to ensure some revenue for the state. It is likely that liquor, with a heavy excise burden on it, will be available in the near future to people who buy 'health' permits from the Government. To maximise revenues, the Government may also take control of liquor distribution. There is also some talk about the price of subsidised rice being increased from Rs 2 to Rs 4. But the Government itself is mum. State finance secretary Madhav Rao refused comment on the issue saying that it was for the Chief Minister or state finance minister to decide. Gajapathi Raju too decided to seal his lips, saying it would be improper to speak till the opinion-eliciting process is completed. "As of now," he says enigmatically, "the schemes are on."

With political and public outcry reaching fever pitch, it is expected that the Government—which claims that "its endeavour is to adopt a golden mean of managing the state's finances in such a way that neither its economy is allowed to stagnate nor the state finances get into a debt trap"—would find a face-saving solution to the problem before it is too late. 

Subscribe to Outlook’s Newsletter

Next Story : Long Wait For Justice
Download the Outlook ​Magazines App. Six magazines, wherever you go! Play Store and App Store
Online Casino Betway Banner