The roll back of several welfare schemes is raising a political storm in Andhra Pradesh. The opposition is obviously up in arms. The Jagan lobby of course sees it as an opportunity to corner Rosaiah government. The congress government is therefore incurring the wrath of people. But, behind this political spectacle, the hard economic facts are ignored by many.  The official statistics speak volumes of the impact of recession on the state economy. Though, the profligacy of populist government did contribute to the present mess, the fiscal stress caused by the recession is loud and clear. Added to this, the natural calamities, the uncertain political climate have further compounded the problem for Rosaiah government. Even if Rajashekhar Reddy was alive, this situation would have been unavoidable.

The global recession began to set in 2008 October. The preceding four year were period of high growth. For the first time in the history of Andhra Pradesh, the state has recorded highest growth rates even surpassing the national growth performance. The Macro economic aggregates presented in the Socio economic survey 2009-10 tell the story. The state economy witnessed the strongest growth phase during the period 2004-05 to 2008-09. While the nation’s economy grew at an impressive rate of 8.49 percent during this period, the performance of state economy was even more impressive as it registered an average growth of 9.07 percent during the same period. But, this fell to just 5.04 percent during 2008-09. There was a sharp decline in agricultural GSDP which fell from an average of 6.4 percent during 2004-05 to 2008-09 to a meager 1.20 during 2008-09. The manufacturing sector also declined to mere 0.22 percent.

The fall in growth led to steep fall in income. The revenues of the state which grew at more than 19 percent compounded per annum for four year period 2004-2008 have suddenly fallen to 10 percent in the year 2008-09. The situation is much worse in the last year for which the final figures will come soon.

The   declining growth, the falling incomes have resulted in fall in the expenditure of the state government especially the capital expenditure, which is considered to be income generating and the plan expenditure which is aimed at creating additional facilities. The recession in the economy has adversely affected the quality of expenditure having a deleterious impact on the development of the state both in the short term and the long term. Thanks to the extremely good fiscal performance, the capital expenditure for the state grew at  an unprecedented growth rate of 31.66 percent per annum compounded and  the state s plan expenditure recorded an annual growth rate of 26.25 percent  for the four year period  2004-2008. Because of the fall in the revenues of  the government , the growth rate in respect of plan expenditure fell to 13 percent while the capital expenditure  registered a negative growth rate  for the year 2008-09 over the previous year.

While the fiscal  crisis  has stifled the incomes, the high rates of inflation especially the  record food  price  inflation  further complicated the things for  both the common man and the government. The food price inflation  for the country as a whole has accelerated to 19.95 percent  in the week ending December  20009 . This is the fastest pace  in the last eleven years.  This has severely impacted the common man. The economic recession and the inflation together stifled the economic activities resulting in lower growth and reduced income for the government. All this has incapacitated the state government in fiscal terms.

The natural calamities like the drought and floods have further compounded the plight. After four years of good rainfall, the state witnessed the prolonged dry spell. This compelled the government to declare as many as1068 mandals drought hit.This mean barring few urban agglomerations almost the entire state was reeling under the drought. The production of food grains which touched a record 204   lakh tonnes in 2008-09 is expected  to register a fall of 40 lakh  tonnes  in 2009-10 due to severe drought .The unprecedented floods inundated five districts of the state  causing a loss of life and  live stock in addition to property loss to the tune of staggering 12,800 crores.

The state no longer enjoys the fiscal luxury provided by high growth. But, the state is politically under an obligation   to implement the populist measures. The political populism does not match the economic reality. The state government is thus caught between the devil and the deep blue sea. The opposition on the one hand and ambitious Jaganmohan Reddy camp on the other  are hurling stones at the fiscally constrained state government.