Friday, November 28, 2008

AP in Financial Trouble

The Hindu reports that the Andhra Pradesh Government is facing a severe cash-crunch due to the global economic meltdown. The YSR Reddy-led Congress Government, which came to power in 2004 and will go into elections next year, strictly followed the Fiscal Responsibility and Budget Management (FRBM) Act, which is a federal act that mandates that all states must eliminate budget deficits by 2008-09.

The AP Govt. has been extremely successful in this direction, having recorded a budget surplus for the last two years. So confident was the Government in its fiscal abilities that this year, Finance Minister K Rosaiah set a budget of Rs. 1 trillion, historic for an Indian state (the budgets of Bangladesh and Nepal are less that that. However, when it came to funding, the Government was betting on the sale of land worth Rs. 12,000 crore.

Sadly, due to the slowdown, the state has only earned Rs. 3,000 crore, a huge shortfall. Consequently, YSR Reddy went to Delhi to plead with the Vice Chairman of the Planning Commission Montek Singh Ahluwalia for a year's exemption from the FRBM Act. This has been accepted as a genuine request from a state that is in trouble.

However, the AP Govt. is looking to raise funds on its own instead of borrowing from the Union Govt. or from the Reserve Bank of India.

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