On Wednesday, N Chandrababu Naidu was sworn in as Chief Minister of Andhra Pradesh, a well-off State in terms of per capita income and growth of the State gross domestic product, but poor in terms of public finances. He has the unenviable task of somehow mending the latter, without derailing basic government functions. It would amount to ensuring that while projects such as Polavaram and Amaravati — the first a large multi-purpose hydel project and the second a smart-city capital — are completed, the State’s teachers and other employees also get their salaries (literacy rate is just 67 per cent). The State is regarded as “broke” — meaning that its flow of revenues does not quite match borrowings.

Various assessments have brought the crisis to light. In November last year, CRISIL downgraded bonds issued by the Andhra Pradesh Capital Region Development Authority owing to the “liquidity strain” on the State government’s finances. It said that the high revenue deficits (27.6 per cent of revenue receipts in FY23) and high indebtedness (43 per cent of the State’s gross domestic product, including off-budget items) were likely to continue on account of the State’s high revenue expenditure. The State’s capacity to collect taxes is hampered by the fact that its primary sector has a higher-than-national-average share in the State’s economy than the secondary and tertiary sectors. Capital outlay has taken a hit. It was reduced by 56 per cent in FY23 and 14 per cent in FY22, CRISIL points out. A fiscal deficit of 3.8 per cent seems rather high, when seen against the fact that it is being driven by revenue spending, with capital expenditure remaining low.

Naidu’s task is cut out: he has to build own revenues of the State, while securing the capital assistance of the Centre (whether it is through ‘special State’ status or otherwise) in completing the ₹47,000 crore Polavaram project and another ₹40,000 crore for Amaravati. It remains to be seen how he reconciles his populist promises with a campaign based on bankruptcy of the State’s coffers under the watch of YS Jagan Mohan Reddy’s government. Andhra Pradesh’s 10-year journey is instructive. A tax base that relies on liquor and sand cannot be very promising. It must have industry and services as tax revenue earners. The State has been handicapped by the loss of Hyderabad and needs an urban, IT complex, for which Naidu is considered by many to be the right person at the helm.

Naidu will have to use his good offices as one of India’s most industry-savvy and IT-friendly political leaders to kickstart investment through private capital, even as agri-investment is a driver here. The Singapore government, a partner in Naidu’s Amaravati project (in his last term) before it was shelved by the Jagan administration, does not seem to be averse to picking up the threads again. MNCs such as Xiaomi, Isuzu and Kia Motors have set up shop but none is of recent vintage. Attracting industrial investment is crucial to Naidu’s plans for turning around Andhra Pradesh.