Debt Today, Taxes Tomorrow - Who Will Pay for Andhra Pradesh’s Borrowings?

Public finance is often described as the invisible contract between governments and citizens. When a government borrows heavily today, the burden rarely disappears; it is merely transferred to tomorrow’s taxpayers. The latest observations of the Comptroller and Auditor General of India on the finances of Andhra Pradesh raise precisely this concern: whether the state’s growing dependence on borrowing is sustainable, and who will ultimately bear the cost.

Over the past few years, Andhra Pradesh’s fiscal indicators have shown signs of increasing stress. The revenue deficit the gap between routine government income and expenditure has remained persistently high. In 2022-23, the state recorded a revenue deficit of about ₹43,488 crore, the highest among Indian states, amounting to roughly 2.2% of GSDP. This means the government had to borrow not for building roads or irrigation projects, but simply to run its day-to-day administration and welfare commitments.

A look at the trend over the last four years reveals a worrying pattern. The revenue deficit ratio was relatively moderate before the pandemic but widened significantly afterwards. Around 2020-21, fiscal pressures rose due to COVID-19-related spending. By 2022-23, the deficit had crossed 2% of GSDP, and in 2024-25 estimates it climbed close to 3% of GSDP, reflecting structural stress in the state’s finances. While the state has projected a decline to about 1.8% of GSDP in 2025-26, such projections depend heavily on optimistic revenue assumptions and improved tax collections.

The deeper concern, however, lies not merely in the size of borrowing but in how the borrowed money is used. Ideally, government debt should finance capital expenditure investments that create long-term assets such as roads, ports, irrigation systems, or industrial infrastructure. These projects generate economic growth and future revenue, making the borrowing productive. In Andhra Pradesh’s case, audit findings indicate that a significant share of borrowing has been used to finance revenue expenditure, including welfare schemes, subsidies, and routine administrative costs. In fact, only about 17% of public debt in 2022-23 was used for capital expenditure, a figure far below what fiscal prudence would recommend.

Recent audit observations have also pointed to declining capital spending. In 2024-25, the state spent only about ₹29,241 crore on capital expenditure, far below the budgeted amount, indicating that borrowing is not translating into infrastructure creation. Such trends raise a fundamental question: if loans are not building assets that generate future income, how will the state repay them?

When compared with other Indian states, Andhra Pradesh’s fiscal position appears relatively more strained. Large states such as Maharashtra, Gujarat, and Karnataka have managed to keep revenue deficits lower or even maintain occasional revenue surpluses by strengthening tax collections and controlling expenditure growth. In contrast, Andhra Pradesh has repeatedly appeared among the states with the highest revenue deficits in absolute terms. Nationally, the combined fiscal deficit of states is projected at around 3.1% of GSDP in 2025-26, indicating a broadly controlled fiscal environment. Yet several states, including Andhra Pradesh, continue to exceed recommended limits, reflecting uneven fiscal discipline across the federation.

The implications of this pattern extend far beyond accounting numbers. High revenue deficits mean that a growing portion of government income must be spent on interest payments and debt servicing. Over time, this reduces the fiscal space available for development spending. Moreover, future governments may face pressure to raise taxes or cut public services in order to manage debt obligations. In other words, today’s borrowing can translate into tomorrow’s higher taxes.

To be sure, welfare spending has an important social purpose. Programs aimed at poverty alleviation, education, healthcare, and social security are essential in a developing society. However, when welfare commitments expand faster than the state’s revenue capacity, fiscal sustainability becomes a serious concern. Economic history shows that no welfare model can survive indefinitely if it is funded primarily through borrowing.

The challenge, therefore, is not to abandon welfare but to restore fiscal balance. Andhra Pradesh must strengthen its own tax revenue by improving compliance in GST, property taxation, and user charges. Equally important is the rationalization of subsidies and welfare programs to ensure that benefits reach the truly needy without excessive fiscal leakage. On the expenditure side, the government must prioritize capital investment, particularly in infrastructure, industrial corridors, ports, and irrigation projects that can stimulate growth and employment.

Transparency in public finance is another crucial reform. All borrowings including off-budget liabilities and guarantees should be clearly reported so that citizens and legislators can assess the true fiscal position of the state. Stronger adherence to fiscal responsibility legislation can help ensure that deficits remain within sustainable limits.

Ultimately, the debate on state finances is not merely technical; it is moral and political. Governments are trustees of public money, and fiscal decisions today shape the opportunities available to future generations. Borrowing can be a powerful tool for development if used wisely. But if loans merely fund current consumption, the result is a silent transfer of burdens from today’s voters to tomorrow’s taxpayers.

The question facing Andhra Pradesh, therefore, is simple but profound: are today’s borrowings building tomorrow’s prosperity, or merely postponing tomorrow’s taxes? The answer will determine not only the state’s fiscal health but also the economic future of its citizens.