A new clause has been inserted in the FRBM Act prescribing higher limits of revenue deficit from 2021-22 to 2025-26 financial years.

Andhra Assembly amends FRBM Act to allow larger revenue deficit File Photo
news Governance Saturday, November 27, 2021 - 14:29

The Andhra Pradesh government on Friday, November 26, further amended the Fiscal Responsibility and Budget Management Act, 2005, to enable enhanced borrowings and also allow a larger revenue deficit. On the final day of its delayed monsoon session, the state Legislature passed the FRBM Act Amendment Bill introduced by Finance Minister Buggana Rajendranath. The fresh amendments to various clauses in the FRBM Act were brought in on a day the Comptroller and Auditor General of India came out with a report on the State Finances Audit Report, pointing out that the previous amendment in December 2020 was at "variance with the projections made by 14th Finance Commission for fiscal balance".

The fresh amendment enacted on Friday enhances the "limit the amount of annual incremental risk weighted guarantees to 180% of the total revenue receipts in the year preceding the current year" from the existing 90%. A new clause has been inserted in the FRBM Act prescribing higher limits of revenue deficit from 2021-22 to 2025-26 financial years.

For the current year, the revenue deficit limit has been pegged at 3.6% of the Gross State Domestic Product, up from 2.5% in 2019-20, though the actual that year was 3.17%. The revenue deficit limit has been pegged at 3.3% (for 2022-23), 3% (2023-24), 2.7% (2024-25) and 2.4% (2025-26).

Read: Andhra govt pulled up by CAG for condition of state finances

Similarly, another new clause has been inserted, prescribing the fiscal deficit limits till 2025-26, including a 0.5% additional borrowing allowed for performance in the power sector. For 2021-22, the fiscal deficit limit has been set at five per cent of the GSDP. The limit has been set at 4.5% for 2022-23, 4% for 2023-24 and 2024-25 and 3.5% for 2025-26.

Also, the amendment brought in yet another new clause to "ensure the outstanding total liabilities", excluding government guarantees" were contained within the prescribed limits till 2025-26 fiscal year.

For the current year, the limit has been set at 35.6% of the GSDP. It will be 36.3% in 2022-23, 36.1% in 2023-24, 35.8% in 2024-25 and 35.5% in 2025-26. Explaining the objects and reasons behind the amendments, the Finance Minister said the "damage inflicted by the state bifurcation had a disastrous impact on the economic and financial parameters".

Buggana said the disadvantages arising from the uneven division of resources (between Andhra Pradesh and Telangana) was likely to circumscribe the long-run growth prospects of the state. The outbreak of COVID-19 and the unprecedented measures adopted to contain its spread also had a serious impact on the state's resources, causing a substantial reduction in realisation of its own revenues.

"Horizontal devolution of Central transfers has considerably reduced in the 15th Finance Commission award. These added constraints only compounded the fiscal stress of the state," the Finance Minister noted. Hence the amendments to the FRBM Act, he added.

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