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The Rediff Business Special/George Iype

Cyber-savvy Andhra Pradesh in a financial quagmire

At first sight, you would hardly find anything common between contractors, advertising agencies and other public organisations in Andhra Pradesh. A closer look, however, tells an entirely different story. All of them are protesting because the state has not cleared their long-pending bills for services rendered.

And you need not be a brain surgeon to discern why the bills have not been settled. Bluntly put, the state just does not have the money to pay.

That India's most 'infotech savvy, progressive and growth-oriented' state should be the object of protest marches by creditors is indeed alarming. Contractors, who have executed government works all over Andhra Pradesh, have been on a fast-unto-death demanding clearance of their huge bills by the government. The Telugu Desam Party government headed by Chief Minister N Chandrababu Naidu owes the contractors a whopping Rs 24 billion.

Several advertising firms in Hyderabad are soon planning to take out protest marches in the city. Their grievance is that the Naidu government has failed to pay their dues, estimated to be around Rs 50 million. Naidu has been using the services of these ad agencies for the publicity blitzkrieg that he launched for his various populist schemes.

Six months after he returned to power for the second term, the IT-savvy chief minister has found that his state is in a financial mess. And the World Bank, which has generously provided loans for Naidu's many rural and urban welfare schemes, has approached the government urging him to pay the contractors, advertisers and other public agencies.

The World Bank has even threatened that it will take punitive action if the government does not particularly pay nearly 250 contractors whom the Naidu administration owes Rs 750 million. These contractors executed the works under the World Bank-funded AP Economic Restructuring Programme and AP First Referral Health Systems Project. Under these schemes, the contractors built 593 primary health centres and 122 district hospitals, but the bills have been pending with the state government for nearly one year now.

"We have asked the government to pay the contractors as they executed works for the World Bank projects. It is an important issue for us," says Tawhid Nawaz, a World Bank official based in Hyderabad.

The AP Health and Medical Housing and Infrastructure Development Corporation contractors' association has been pleading with the government for payment for the last one year. "We have been undertaking government works for many years. But it is the for the first time that the government has failed to clear huge bills like this," says the association president Y S Subramaniam.

It is not the contractors' tirade against him that is hurting Naidu. The state is undergoing a severe fiscal crisis that the opposition Congress party has written to President K R Narayanan to declare a financial emergency in Andhra Pradesh.

"The Naidu government deserves to be punished because the state is on the verge of a financial collapse," says Congress leader K Rosaiah.

He says the government is resorting to gimmicks because the treasuries, which are unable to pay even the very urgent requirements, have directed that the bills to be referred back to departments for further verification.

As per official records, the state government drew Rs 70 billion during 1998-99 from the Reserve Bank of India towards ways and means advances, the highest amount drawn by the state ever.

Many of the state government departments are reeling under grave financial crunch because they have not been allocated money to implement the social welfare schemes.

For instance, the Andhra Pradesh State Housing Corporation, that undertakes the rural and urban permanent-housing programme, had a target of building one million houses by June this year. But its targets will never be met as the Corporation is yet to receive the proposed outlay of Rs 6 billion for the project.

The Naidu government acknowledges that a financial stringency has hit the state, but claims that it is not as alarming as the opposition parties make it out to be.

According to Finance Minister Y Ramakrishnudu, the budget estimates of 1998-99 were upset because the state implemented a major pay hike for the government employees. "Out of the overall expenditure of Rs 260 billion during the last financial year, Rs 104.80 billion was spent on the pay revision on salaries and pensions," the Minister points out.

Naidu's zest to put the state on the information technology super highway has made him the darling of the industry, world IT giants like Microsoft and Oracle and global leaders like US President Bill Clinton.

But Naidu finds himself on the verge of bankruptcy because many of his populist welfare schemes are in a muddle. The state government claims it spends Rs 11 billion annually to supply cheap rice to 11.3 million families below the poverty line. But opposition politicians allege the figure is fabricated.

Similarly, the government proposed to spend Rs 3.50 billion a year for the Deepam scheme under which each family would be entitled to a gas connection. While the target till March this year was 3.5 million homes, the government has just managed to provide only 200,000 gas connections so far.

The much-heralded power sector reforms are also comatose. Two years ago, Naidu bifurcated the state electricity board into separate power generation and transmission corporations. But the power reforms are yet to be implemented as the loss making electricity bodies have demanded a subsidy of at least Rs 20.74 billion from the government.

The state government's mounting debt, poor capital outlay and the increasing mismatch between the receipts and expenditure forced the Comptroller and Auditor General to warn recently that there is an overall deterioration in the financial condition of the state.

Part II: Populist schemes, dwindling revenues push Andhra into debt trap

Specials

Business

Andhra Pradesh