Growth Without Revenue

The Andhra Pradesh government continues to project an image of rapid economic expansion, massive industrial investments, and infrastructure-led transformation. Official speeches repeatedly highlight rising Gross State Domestic Product (GSDP), foreign investments, new industrial corridors, and mega projects such as Amaravati, Polavaram, data centers, and steel plants. However, the latest financial observations released by the Comptroller and Auditor General (CAG) expose a disturbing contradiction: while the state economy is expanding statistically, the government’s own revenue base remains weak, unstable, and increasingly dependent on borrowing.

According to the state’s financial accounts for 2024-25 and 2025-26, Andhra Pradesh mobilized roughly Rs 2.50 lakh crore and Rs 2.55 lakh crore respectively through a combination of state taxes, non-tax revenue, central transfers, grants, and loans. Yet, the state’s own tax and non-tax revenue stood at only about Rs 1.11 lakh crore in 2024-25 and Rs 1.17 lakh crore in 2025-26. More importantly, actual revenue realization reportedly remained below 81 percent of budget estimates. This means that budget projections are increasingly detached from fiscal reality.

The state government proudly claims that Andhra Pradesh’s GSDP has crossed nearly Rs 18 lakh crore with double-digit growth projections. But if the economy is truly expanding at such a pace, why is state revenue stagnating at barely 7 percent of GSDP? The answer lies in the political economy of tax concessions, subsidies, and aggressive corporate incentives.

Corporate Incentives and Public Losses

Successive governments in Andhra Pradesh — including both the previous YSR Congress Party administration and the current Telugu Desam Party-led coalition — have adopted a policy of attracting private investors through enormous financial concessions. These include Goods and Services Tax (GST) reimbursements, electricity subsidies, land allotments at nominal prices, stamp duty exemptions, and long-term tax holidays.

Large industries are receiving land at highly subsidized rates, sometimes symbolically priced at 99 paise per acre under special industrial promotion schemes. Thousands of acres are being allocated to solar, wind, hydro, and industrial projects through land acquisition mechanisms that often displace farmers and rural communities. The long-term cost of these incentives rarely enters public discussion.

Take the example of the proposed ArcelorMittal steel plant. The first phase reportedly targets a production capacity of 7.3 million tonnes annually. Based on existing steel industry tax structures, such production could potentially generate approximately Rs 3,800 crore annually in GST revenue for the state. If expanded to over 22 million tonnes in later phases, annual GST potential may exceed Rs 11,000 crore. However, the company has reportedly been promised GST reimbursements and concessions for nearly 15 years. This could translate into a cumulative revenue sacrifice of more than Rs 57,000 crore during the concession period.

Similarly, the proposed Google data center projects near Visakhapatnam involve enormous electricity commitments. Reports suggest the state may provide nearly 1,650 megawatts of power at highly subsidized rates — close to Re 1 per unit — while the actual procurement and supply cost remains far higher. Estimated annual subsidy burdens could exceed Rs 5,000 crore. Over 15 years, the state could effectively transfer nearly Rs 75,000 crore in indirect support to a single corporate ecosystem.

The contradiction becomes sharper when compared to public sector industries such as the Visakhapatnam Steel Plant. Existing operations reportedly contribute around Rs 2,400 crore annually in GST and nearly Rs 1,200 crore in electricity payments to state utilities. Public enterprises generate revenue streams, whereas many private investment agreements appear structured around long-term exemptions.

Shrinking Central Support

The financial crisis is further aggravated by declining fiscal transfers from the Union government. Andhra Pradesh has repeatedly argued that bifurcation-related commitments remain unfulfilled. Despite political alignment between the ruling coalition in the state and the Bharatiya Janata Party-led Union government, fiscal assistance has remained limited.

State share in central taxes reportedly stood at around Rs 40,587 crore in 2024-25 and Rs 36,869 crore in 2025-26. However, many economists argue that states effectively receive much less than the constitutionally discussed 41 percent devolution formula after various adjustments and cess collections retained by the Centre.

Meanwhile, centrally sponsored schemes increasingly require larger state contributions. For instance, the state share in the Mahatma Gandhi National Rural Employment Guarantee Scheme reportedly rose from 10 percent toward nearly 40 percent in certain expenditure categories. Reduced grants combined with increased matching obligations place additional pressure on already strained state finances.

Revenue Expenditure Dominates the Budget

Another alarming trend is the structure of expenditure itself. In 2024-25, nearly 92.17 percent of total state expenditure reportedly went toward revenue expenditure. In 2025-26, the figure remained close to 89.40 percent. This includes salaries, pensions, subsidies, welfare obligations, and debt servicing.

Interest payments alone consumed approximately 16.05 percent of expenditure. Salaries accounted for 26.04 percent, pensions 11.36 percent, and subsidies over 11.53 percent. As debt rises, interest payments automatically consume larger portions of future budgets, creating a vicious cycle where governments borrow merely to service earlier loans.

At the same time, the government argues that employee salaries and pensions are becoming unsustainable burdens. Yet recruitment to vacant posts remains frozen in many departments. Lakhs of contract workers, outsourcing staff, and scheme workers continue with low wages and insecure employment conditions. Pay Revision Commission implementation has been delayed repeatedly.

The contradiction is obvious: despite complaints about salary burdens, the government is neither strengthening permanent employment nor improving public service delivery.

Dependence on Temporary Borrowing

Perhaps the most worrying sign is the state’s increasing reliance on short-term liquidity arrangements. Andhra Pradesh reportedly borrowed nearly Rs 1.72 lakh crore through Special Drawing Facility, Ways and Means Advances, and overdraft mechanisms from the Reserve Bank of India during the previous year alone. Interest payments on these temporary borrowings crossed Rs 300 crore.

Such borrowing patterns usually indicate severe cash-flow stress. Governments resort to these mechanisms when regular revenue inflows become insufficient to meet day-to-day expenditure obligations.

In addition, funds belonging to local bodies, welfare boards, pension contributions under the National Pension System, and construction workers’ welfare cess have reportedly been diverted at different times to manage immediate fiscal pressures. This weakens institutional finances at every level.

Rising Debt and Weak Capital Formation

The state’s total public debt has reportedly crossed Rs 7.11 lakh crore, nearly 36 percent of GSDP. This excludes off-budget borrowings through corporations and special purpose entities, estimated at more than Rs 1 lakh crore. Borrowings linked to Amaravati infrastructure projects alone reportedly exceed Rs 50,000 crore outside conventional budget accounting.

Despite this massive debt accumulation, capital expenditure remains remarkably low. The government reportedly spent only about 6 percent of total expenditure on capital creation in one year and around 10.25 percent in another. Combined capital spending stood near Rs 18,330 crore and Rs 26,018 crore respectively.

This raises a critical question: if borrowing is not translating into productive public assets, irrigation systems, schools, hospitals, employment generation, or rural infrastructure, then who ultimately benefits from these debts?

A Dangerous Fiscal Direction

Andhra Pradesh today represents a troubling model of debt-driven development combined with corporate concessions and shrinking welfare capacity. The state is borrowing heavily, surrendering future tax revenues, subsidizing private capital, and reducing long-term public investment simultaneously.

Economic growth without fiscal stability becomes an illusion. A government cannot endlessly compensate for weak revenue generation through loans, temporary borrowing, and asset monetization. Eventually, the burden shifts onto ordinary citizens through higher user charges, indirect taxes, reduced welfare spending, and declining public services.

Behind the publicity campaigns, investment summits, and infrastructure slogans, Andhra Pradesh’s fiscal structure is showing clear signs of stress. The danger is no longer theoretical. It is already unfolding.