During December last year, the YSRCP in Andhra Pradesh carried out a large-scale campaign where party members collected over one crore signatures against the TDP-led Andhra Pradesh government's proposal to build and operationalise 10 medical colleges on a PPP model, specifically on a Design-Build-Finance-Operate-Transfer (DBFOT) basis. The plan was to initially offer four hospitals and then issue a tender for the rest.

The strong campaign led by former Chief Minister YS Jagan Mohan Reddy created an atmosphere of fear in the state, leading to almost no bids. This has caused Andhra Pradesh's Health Minister Y Satya Kumar Yadav to accuse YSRCP leaders of directly calling and threatening potential bidders to thwart the tendering process.

For their part, the YSRCP explained its opposition, claiming that creeping privatisation will render healthcare unaffordable for the poor and reduce opportunities for medical professionals to secure government jobs.

Why the PPP Model?

During his tenure from 2019 to 2024, then-Chief Minister YS Jagan Mohan Reddy promised to establish 17 government medical colleges in Andhra Pradesh, out of which five had actually finished construction and started classes, while two had been substantially completed with approvals in place.

Until 2019, Andhra Pradesh had only 12 government-run medical colleges, with each new one planned at an estimated cost of Rs 500 crore on a 50-acre expanse as a medical hub, linking tertiary care to Primary Health Centres (PHCs), Community Health Centres (CHCs), and village clinics.

Operationalising the medical colleges under the PPP model would have accelerated completion while reducing the state's fiscal burden by saving thousands of crores in capital and recurring costs. It could also have expanded tertiary healthcare alongside medical education without increasing fees for government-quota students. Under the arrangement, 50 per cent of undergraduate seats are reserved for the government quota, while the remaining are split between management and NRI quotas, with fees regulated by a state committee.

Andhra Pradesh's Debt Crisis After Bifurcation

After the creation of Telangana, the new state of Andhra Pradesh inherited 58 per cent of the erstwhile combined state's population but could only inherit 46 per cent of its revenues. The loss of Hyderabad, a metropolis that contributed significantly to the commercial tax and excise revenue base, resulted in a structural revenue deficit and difficult financial challenges from the very beginning.

From 2014 to 2017, the state took on debt that was on the books of its power distribution companies to clean up the sector. Debt repayment consumed up to a third of GDP before gradually reducing. This massive liquidity drain severely constricted the fiscal space for asset creation, resulting in a capital outlay of only 5.5 per cent in 2014–15, a figure that barely covered the maintenance of existing assets, let alone the construction of new ones.

Revenue expenditure of 60.2 per cent was largely driven by salaries and pensions for the redistributed workforce, leaving little room for discretionary schemes. From FY 2017–18, when the fiscal adjustments under the UDAY Scheme were largely completed, focus shifted to expanding capital expenditure, which climbed to 9.2 per cent and reached a peak of 12.2 per cent in FY 2018–19. Revenue expenditure stayed constant at around 80 per cent.

Much of the capital outlay was focussed on creating the capital Amaravati for a state that did not have one. This was the situation during the 2019 Andhra Pradesh state election campaign, when YSRCP under Jagan Mohan Reddy promised to create 17 new medical colleges across Andhra Pradesh, one in each district.

The Financial Disaster Caused by YSRCP's Governance

During the tenure of the YSRCP, Andhra Pradesh shifted to a high revenue expenditure-led model where the creation of a new capital was deprioritised and dropped to favour the Navaratnalu welfare schemes. Consequently, capital outlay collapsed from a high of 12.2 per cent in 2018–19 to a historic low of 3.2 per cent in 2022–23.

By allowing revenue expenditure to consume nearly 89 per cent of the budget (2022–23), the administration effectively borrowed to fund consumption rather than assets. This kind of expenditure depresses the fiscal multiplier, meaning the state generates less GDP growth for every rupee spent compared to infrastructure-led spending.

Additionally, the CAG found instances where "revenue expenditure" (grants and subsidies) was misclassified as "capital expenditure" to optically inflate the asset-creation numbers. This suggests the actual capex might have been even lower than the reported 3–9 per cent.

Beyond this, when revenue receipts fell short, there was a chronic inability to meet capex targets. For instance, in 2022–23, the state budgeted ₹30,678 crore for capital outlay but spent only ₹7,245 crore, a realisation rate of less than 25 per cent. Diverting these earmarked funds to meet committed welfare expenses became standard operating procedure.

In addition to the deflated capital expenditure, the YSRCP-led administration also ballooned Andhra Pradesh's off-budget borrowings to bypass the limits set by the Fiscal Responsibility and Budget Management Act, 2003, according to the CAG's audit of the state's finances.

The government raised significant loans through State Public Sector Enterprises (SPSEs) like the AP State Development Corporation and AP State Beverages Corporation, escrowing future state revenues (such as liquor tax) to service them. These issues were repeatedly flagged by CAG reports, noting that these borrowings were not disclosed in the budget but were serviced by the state budget, thereby understating the true deficit figures and violating fiscal norms in the process.

As per the estimates of the 2024 White Paper on State Finances, the inclusion of the aforementioned liabilities would cause the total debt obligations to rise to ₹9.74 lakh crore by June 2024, creating a "potential debt trap".

No Capital, No Cluster: How Abandoning Amaravati Hurt Long-Term Growth

Andhra Pradesh's loss of Hyderabad as a source of financial revenues has been well documented above. However, a capital city, especially a large one like Hyderabad, goes beyond mere revenue in the state's balance sheet.

Greater Hyderabad's population is five times that of Visakhapatnam, the largest city in Andhra Pradesh. Moreover, Hyderabad's population is so large that it still has 3.5 million more people when compared to six of Andhra Pradesh's largest cities combined.

Larger, denser cities tend to generate higher productivity because agglomeration concentrates workers, firms, and ideas in one place, enabling thick labour markets, shared suppliers, and intense knowledge spillovers that raise wages and output per worker.

Empirical studies across OECD and Indian cities show that productivity systematically increases with city size and employment density, with even small changes in local density improving firm performance through easier matching, learning, and specialisation.

Hyderabad's IT and life-sciences clusters illustrate this: successive studies of Indian software hubs show that proximity of firms in Hyderabad and Bengaluru created classic Marshallian externalities, including specialised talent pools, networked suppliers, and rapid diffusion of know-how, supporting unusually fast growth in high-value services relative to more dispersed regions.

In contrast, Andhra Pradesh under YS Jagan Mohan Reddy not only abandoned the idea of a single dominant capital but also effectively froze and unwound the Amaravati capital project. Within months of taking office in 2019, his government ordered stoppage or cancellation of major capital-region works worth tens of thousands of crores, halted most new construction, and reviewed or scrapped large pre-2019 contracts. All these acts signalled a decisive retreat from building out a concentrated administrative and economic core.

The change in priorities and the government's stance contributed to the World Bank and AIIB dropping a combined USD 500 million in planned funding for the Amaravati Sustainable Capital City project. International partners like the Singapore consortium exited, further weakening the prospects of Amaravati evolving into a large-scale, integrated metropolis.

Jagan's three-capitals model and the pivot to a multi-node Visakhapatnam economic region deliberately caused political and economic functions to spread out across several urban centres. Even if this could have led to more geographically balanced development, the scale economies ended up getting diluted because equivalent populations split across multiple cities do not deliver the same productivity gains as a single large metropolitan area.

The latter point can be understood by looking at Hyderabad's IT and biotech-driven metropolitan economy, which has benefited from concentrated human capital, infrastructure, and institutional depth.

Without sustained investment in a unified capital and a single city capable of hosting 10–15 million people, Andhra Pradesh is structurally disadvantaged in trying to recreate the same intensity of clustering and agglomeration rents that Greater Hyderabad now enjoys.

Thus, by derailing the Amaravati project in order to fund his appeasement politics, Jagan Mohan Reddy derailed Andhra Pradesh's economic growth, crippling its financial infrastructure.

Now, as the present administration is essentially attempting to fulfil a promise Jagan Mohan Reddy himself made and then failed to deliver, the latter could at least lend a helping hand instead of further hampering the welfare of his state and the well-being of its residents.

Aditya Bharadwaj and Keshav Kumar Thakur

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