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AP govt to raise Rs 5,000 crore loan one last time

Part of it will be to foot employee salary bill

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BS Reporter Hyderabad
Last Updated : May 21 2014 | 9:11 PM IST
The finance ministry today cleared a request of the Andhra Pradesh administration to raise Rs 5,000 crore through market borrowings, most of it to meet the employee salary bill in the current month.

The state is facing a sudden funds crunch with the government deciding to pay the current month salary on May 24 itself as this is going to be the last month in the history of the undivided Andhra Pradesh . The new state of Telangana and the residual state of Andhra Pradesh will start functioning from June 2.

“We paid Rs 5,000 crore towards April month salary on May 1. Now we will be paying another Rs 5,000 crore towards the current month resulting in a shortfall of about Rs 3,000 crore in the state exchequer,” a senior finance department official told Business Standard while confirming the development.

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On average, the state exchequer is replenished with Rs 6,000-7,000 crore every month by way of tax collections among other things and paying the salaries twice in a single month has proved too heavy on the government coffers. There is a hefty pay revision already on the cards.

According to the officials, the Reserve Bank of India was already in the process of notifying the AP government’s two-tranche borrowing plan, first for Rs 3,000 crore to be raised tomorrow and the rest on May 27 by way of issuance of bonds. The additional borrowings were meant to ensure that the two states had at least Rs 2,000 crore each in their exchequers on the appointed day.

The borrowing limit of the undivided state was fixed at Rs 29,000 crore for the current financial year of which, the finance department has raised Rs 2,000 crore so far.

The financial situation comes in quite contrast to the electoral promises made by the Telugu Desam Party (TDP) and the Telangana Rashtra Samithi (TRS), which will form the new governments in the residual Andhra Pradesh and the new state of Telangana respectively on or after June 2.

Among other things, both the TDP and the TRS had promised waiver of farm loans as soon as they come into power. While TDP supremo N Chandrababu Naidu went a step ahead by saying his first signature as chief minister would be on the loan waiver scheme.

According to an estimate, the farm loan outstandings, which include crop loans, rescheduled farm loans and term loans in the residual Andhra Pradesh, stood at a whopping Rs 83,000 crore while in Telangana, it is about Rs 45,000 crore.

“If the new government of the residual AP takes over this entire farm loan burden upon its shoulders and manages to bargain a reschedulement from the RBI, it will have to pay Rs 20,000 crore to banks every year for the next five years. For a state that is expected to begin its journey with a Rs 15,000-crore revenue deficit in the first year, this promise hardly makes any sense,” the official pointed out.

Besides promising waiver of farm loans up to a limit of Rs 1 lakh per farmer, TRS president K Chandrasekhara Rao promised to implement the central pay scales to the government employees. Even though the state of Telangana is expected to begin with a surplus budget thanks to Hyderabad city, it will be left with little money to spend on the development activities if it seeks to fulfil the electoral promises, the officials said.

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First Published: May 21 2014 | 8:25 PM IST

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