The AP government's financial position has improved substantially over the last two years, largely on account of the partial revocation of prohibition in the state and other fiscal initiatives like increase in irrigation tariffs and reduction in rice subsidy. The gross fiscal deficit of AP also reduced to 3.31 per cent of net state domestic product (NSDP) in 1997-98 from 3.89 per cent in 1996-97. The state's deficit is further budgeted to decrease to 3.26 per cent during the current fiscal.

Over the last two years, the state government has initiated extensive structural reforms encompassing its finances, the economy, public sector utilities and corporations. These initiatives have resulted in improved finances of the government and have also been successful in attractingsignificant private sector investments in the industry and infrastructure of the state.

The prominent reform measures undertaken by the AP government on the fiscal side include partial revocation of prohibition on liquor, curtailment in the expenditure on supply of subsidised rice, freeze on fresh recruitment, hike in power tariffs and increases in water and transportation charges. The state government has also made considerable progress in the reform of Andhra Pradesh State Electricity Board (APSEB). The proposed reform measures include establishment of an independent regulatory commission, de-bundling of the generation, transmission and distribution entities on operational lines and significant private sector participation.

The performance of the AP economy has been characterised by a modest growth rate of NSDP in the past. The state's NSDP has grown at a compounded annual growth rate of 5.4 per cent which is lower than that witnessed in other states. Andhra's per capita NSDP also lags the nationalaverage. Demographically, too, AP is characterised by a higher growth rate in population than the all-India average. However, the current economic restructuring plan of the state, assisted by the World Bank, is primarily directed towards improvement of the social and economic structure of the state.

The upgrade in the state's rating has also led to a revision in the credit ratings of the debt programmes of four state corporations. The ratings on the debt programmes of all these corporations have been raised to A (SO) from A- (SO).

The Andhra Pradesh State Irrigation Development Corporation (APSIDC), Andhra Pradesh Water Resources Development Corporation (APWRDC), Andhra Pradesh Road Development Corporation (APRDC) and the Andhra Pradesh State Electricity Board (APSEB) have together raised funds through bond issues amounting to Rs 1,873 crore. While APSIDC has raised Rs 62 crore, APWRDC and APRDC have raised Rs 303 crore and Rs 408 crore, respectively. APSEB alone has raised Rs 1,100crore.

INSIGHT
World Bank conditionalities will aid state's fiscal position

The bonds are backed by credit enhancement mechanisms and special accounts are to be opened for meeting the obligations arising out of the issue of these bonds. More importantly, the state has received a Rs 3,320-crore loan from the World Bank for economic and social reform and the conditionalities include reduction in fiscal deficit to 2.5 per cent in 2002-3, control over salary and interest expenditure, reduction in subsidies and a ceiling on the total outstanding debt and guarantees as a proportion of state domestic product. These conditionalities will help the state put its financial house in order.