Editorial: Andhra government's revenue initiatives

An incumbent government could blame the previous government for bequeathing empty coffers and a huge debt burden to score political points, but eventually, it needs to mobilise the required financial resources to fulfil electoral promises. Andhra Pradesh Chief Minister N Chandrababu Naidu has made expensive promises — both welfare and infrastructural. The question staring the TDP-Jana Sena-BJP government is, where will the money come from? Being a part of the NDA government at the Centre has not yielded in terms of grants and allocations as much as the parties and people had expected. In fact, according to the government, central government transfers had dropped by 26 per cent. Being a pragmatic leader, the TDP supremo has been harping on financial self-reliance instead of openly taking it up with the Centre.

In the last few months, Chandrababu Naidu has been engaging with bureaucrats and at the May 14 meeting, he exhorted officials to meet the revenue target of Rs 1.34 lakh crore which is 29 per cent more than the previous year and a projected planned expenditure of Rs. 3.22 lakh crore for the fiscal 2025-26. For comparison, Tamil Nadu is looking at a 14.6 per cent increase in revenue to Rs 2.20 lakh crore while its total expenditure is targeted at Rs 4.39 lakh crore.

Governments have only limited options due to electoral and other compulsions. Typically, states try to increase revenue by plugging loopholes and improving collection efficiency. Naidu had pointed out the example of revenue from gold sales, which was not commensurate with the volume of trade.

Another major revenue source for many states is liquor, and Andhra Pradesh reportedly loses revenue due to liquor smuggling from neighbouring states. Being a tech-savvy chief minister, Naidu wants the revenue-generating departments to use Artificial Intelligence and other cutting-edge data analytics to improve tax collection.

It is not easy to diversify sources of revenue, as it would mean an increased tax burden on voters.

Typically, governments tend to raise revenue from liquor, tobacco products, lottery, online gaming, etc, which can be touted as a sin or vice tax, often justified as a deterrent measure. Lottery and online gaming are banned for now. Mines and forest resources are important revenue sources despite the concomitant environmental restrictions and costs. The proposal to auction red sandalwood is a case in point. Endemic to a few districts, Red Sanders is a high-value product with export potential to China and Japan. The state government could monetise it, subject to clearances, as Red Sanders is classified as an endangered species. Regarding mines, last month, the state Cabinet approved the Minor Mineral Policy 2025, which is expected to yield revenues, besides reviving MSMEs and generating employment.

Non-BJP governments in the south have been complaining that central allocations and sharing of tax revenues have been unfair and unjust, and governments like Tamil Nadu have learned to fend for themselves by boosting economic and industrial growth. Each state needs to find the balance between investing in infrastructure that will spur industrial growth and expand trade and spending on welfare measures, especially in education and health, which are prerequisites for economic development as well. In the long run, state governments need to advocate fiscal federalism and enable overall development, which again needs financial support. Broadening the tax base and increasing tax and non-tax revenues through efficient and fool-proof tax collection are important, but are not enough to reduce reliance on debts.