The Andhra Pradesh government will have a herculean task in striking a balance in the upcoming Budget for the year 2025-26, given the need to roll out some of the key poll promises and ensuing infrastructure development to woo investors.
What compounds the challenge for the cash-strapped State Government is the lack of general support from the Centre in its FY26 Budget though it did take into consideration the need to implement key projects of the ruling NDA Government led by N Chandrababu Naidu.
The State Cabinet will review the finances and is expected to make crucial decisions on budgetary allocations and the schedule for Budget presentation during its meeting on February 6.
The Budget will also be the first full Budget to be presented by the NDA Government, following three interim Budgets presented last year — one by the YSR Congress Government, which lost the mandate in elections held in May last year, and two by the NDA Government, which said “it needed time to understand the damage” done by the previous government led by YS Jagan Mohan Reddy.
FISCAL CHALLENGES
As observed by the NITI Aayog in its Fiscal Health Index 2025, the States’ fiscal health is in alarming condition. Andhra Pradesh ranks 17th in fiscal health among all States, with a score of 20.9 out of 100.
It advised the State government to focus on improving capital expenditure efficiency, optimising committed spending, diversifying revenue sources for greater resilience, and may enforce strict fiscal discipline.”
LEGACY
The observations in the report strengthened the contention of the State Government about the legacy of ‘financial mismanagement’ inherited by the previous government.
Since 2018- 19, the Capital Expenditure of the State came down in both the social and economic services sectors by 84.3 per cent and 60.1 per cent, respectively, on a cumulative basis. The State has also been unable to achieve its Budget Estimates under capital expenditure. Capex was 3.5 per cent of the total expenditure and just 4.4 per cent of the total borrowings in 2022-23, the study said.
From 2018-19 to 2022-23, the State’s own tax revenue grew at a CAGR of 6 per cent. The ratio of State own tax revenue to the total tax revenue saw moderate growth during the same period from 64 per cent in 2018- 29 to 67 per cent in 2022-23. The rate of growth of own revenue has come down from 17.1 per cent in 2018-19 to 9.8 per cent in 2022-23, according to NITI Aayog.
CHALLENGE
It will be a challenge for Naidu to reverse these trends now and boost the State’s own tax revenue while ensuring growth in capex to develop infrastructure. Resources are also needed to roll out mega poll promises like free travel for women in State-run RTC buses which is expected to cost about ₹250 crore per month.
It remains to be seen how Naidu gives shape to his wealth creation model by developing the Greenfield capital in Amaravati and increasing the State’s own non-tax revenues in the upcoming budget.
