Government treading a fiscal tightrope

Presenting the 2026–27 Budget, Finance Minister Payyavula Keshav on Saturday outlined a fiscal roadmap that reflects continued structural strain, with deficits narrowing on paper, but debt servicing exerting sustained pressure on the State’s finances.

The revenue deficit is estimated to be ₹22,002 crore, accounting for 1.11% of the Gross State Domestic Product (GSDP), while the fiscal deficit is projected at ₹75,868 crore, or 3.84% of GSDP.

According to the budget document,  the finance accounts finalised by the Accountant General of Andhra Pradesh show a revenue deficit of ₹60,285 crore and a fiscal deficit of ₹81,362 crore, which were 3.79% and 5.11% of the GSDP, respectively, for the Financal Year (FY) 2024-25.

The revised estimate for revenue expenditure for FY 2025-26 was ₹2,38,021 crore, and for capital expenditure, it was ₹39,498 crore. The revenue deficit was around ₹41,118 crore, whereas the fiscal deficit was around ₹80,567 crore. The revenue deficit was 2.33% and the fiscal deficit 4.57% of the GSDP.

The budget highlights that the State economy is operating under significant structural pressure. The expenditure profile underscores the high cost of the borrowing strategy. Interest and Principal repayments now consume 18 paise of every rupee spent, effectively tying with Welfare (17 paise) for the largest share of the budget. This parity indicates that for every rupee the State spends on direct social benefit, an equal amount is diverted to service past and present debt.

On the income side, while Tax Revenue remains the State’s primary engine at 38 paise of every rupee, the budget’s second largest pillar is Open Market Loans and Other Liabilities, which account for a substantial 30 paise.

When combined with the Share of Central Taxes (19 paise) and Grant-in-Aid (10 paise), it is clear that the State’s internal non-tax revenue, contributing just 3 paise, remains a marginal factor in the overall treasury.

This reliance on market liabilities reflects the ongoing challenge of meeting a 4.19% fiscal deficit target while maintaining liquidity for day-to-day governance.