Hyderabad: The famous Telugu poet, Gurujada Apparao, once said, “A nation is not just its soil, a country is its people.” The same was reiterated even by Union finance minister Nirmala Sitharaman while presenting the Union budget. However, the current fiscal realities of states, including Andhra Pradesh, might compel a grim revision of the quote: “A nation is not its land; it is its debt.”
As both Union and state governments borrow heavily, the country risks drowning in liabilities, with states like Andhra Pradesh and Telangana contributing significantly to this crisis, according to recent data from the Reserve Bank of India (RBI).
Surge of debt at national level
The RBI’s latest report reveals alarming debt levels across Indian states, with collective liabilities skyrocketing from Rs 47.9 lakh crore in 2019 to Rs 83.3 lakh crore in 2024. By 2025, this figure is projected to swell to Rs 90.1 lakh crore, driven by rising welfare spending and lagging revenue streams.
Tamil Nadu leads with Rs 8.3 lakh crore (2024), followed by Uttar Pradesh (Rs 7.7 lakh crore), Maharashtra (Rs 7.2 lakh crore) and Andhra Pradesh (Rs 4.9 lakh crore). However, Andhra’s actual debt burden is far higher, as the state government admits to an additional Rs 5 lakh crore in off-budget borrowings (2024), pushing total liabilities closer to Rs 10 lakh crore.
By 2025, off-budget liabilities are expected to exceed Rs 6.3 lakh crore, raising Andhra’s total debt to Rs 11.2 lakh crore.
Andhra Pradesh’s fiscal quagmire
The RBI’s analysis of Andhra Pradesh’s budgets shows a troubling trend: while revenue grew marginally to Rs 1.82 lakh crore in 2024-25, expenditures surged to Rs 2.3 lakh crore, resulting in a fiscal deficit of Rs 34,743 crore. The state’s 2025-26 budget aims to narrow this gap to Rs 29,000 crore, but economists remain skeptical due to stagnant tax revenues and rising interest costs.
Chief Minister N. Chandrababu Naidu blamed the previous YSRCP government for reckless borrowing, citing that 2019-24 saw only 22.54% of loans allocated to capital expenditure, compared to 59.15% during 2014-19. “Borrowing at high interest rates, coupled with stagnant revenue and poor fiscal discipline, has trapped AP in a debt spiral,” Naidu has said.
Under YSRCP, Andhra Pradesh’s debt repayment capacity had plummeted to zero, with interest payments consuming 15% of revenue. By 2025, interest payments alone could devour Rs 55,000 crore nearly 20% of the state’s projected revenue.
Long-term implications
A Comptroller and Auditor General (CAG) report warns that Andhra Pradesh must repay Rs 3.47 lakh crore between 2021-22 and 2030-31, requiring annual payments of nearly Rs 40,000 crore. For 2025, repayments are estimated at Rs 28,500 crore, but factoring in pending corporate liabilities and guarantees, annual outflows could exceed Rs 45,000 crore.
The RBI underscores the urgent need for fiscal discipline, projecting that states like Andhra Pradesh must prioritise capital expenditure (pegged at 2.1% of GDP for 2025) and curb revenue deficits. While states maintained a consolidated fiscal deficit under 3% of gross domestic product (GDP) from 2021-24, rising subsidies and debt servicing costs threaten stability.
For 2024-25, the RBI projects that states will sustain a gross fiscal deficit (GFD) to GDP ratio of 3.2%, with Andhra’s GFD expected to hover at 4.1% – well above the recommended threshold.
2025: A pivotal year for reforms
The Naidu government has announced a 2025 Fiscal Restructuring Plan, targeting a 12% increase in revenue through stricter tax compliance and reduced power subsidies. However, critics argue these measures may be insufficient without central support. The 16th Finance Commission’s 2025 recommendations, focusing on debt-to-GDP caps for states, could further pressure Andhra Pradesh to adopt austerity.
Andhra’s debt crisis mirrors a nationwide challenge, demanding immediate reforms: boosting capital investment, enhancing revenue streams and enforcing fiscal accountability and changing to skewed distribution formulae weighing towards the states.
With 2025 debt projections painting a dire picture, the state’s ability to balance populist promises with economic pragmatism will determine whether it emerges from the crisis or spirals into insolvency.
