What Happened
- A Comptroller and Auditor General (CAG) report has revealed that the Andhra Pradesh government availed Rs 1.72 lakh crore through RBI's short-term liquidity mechanisms — Special Drawing Facility (SDF), Ways and Means Advances (WMA), and Overdraft — during 2024-25.
- The state maintained its minimum cash balance with the RBI without any borrowing on only 8 of the 365 days in the financial year, indicating near-total dependence on RBI credit for day-to-day treasury operations.
- The breakdown: Rs 42,004 crore under SDF for 71 days (interest paid: Rs 188.82 crore); Rs 73,897 crore under WMA for 179 days (interest paid: Rs 82.30 crore); Rs 56,631 crore under Overdraft for 107 days (interest paid: Rs 32 crore).
- Total interest paid on these short-term RBI borrowings: Rs 303 crore — a significant fiscal cost from what are intended to be temporary bridging instruments.
- The findings reflect Andhra Pradesh's severe fiscal stress, a consequence of high committed expenditure (welfare schemes, debt servicing) relative to own tax revenue generation.
Static Topic Bridges
Comptroller and Auditor General of India (CAG)
The CAG is India's supreme audit institution, established under Article 148 of the Constitution. The CAG is appointed by the President and serves a single non-renewable term of 6 years or until age 65, whichever comes earlier. The CAG audits the accounts of the Union and all states, and cannot be removed except by Parliament through an address — similar to the procedure for removing a Supreme Court judge.
The CAG reports to Parliament (for Union government accounts) and to state legislatures (for state accounts). The Public Accounts Committee (PAC) examines CAG reports at the Centre; equivalent committees exist in state legislatures.
- Article 148: establishment of CAG; appointment by President; removal through parliamentary address
- Article 149: Duties and powers of CAG defined by Parliament (Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971)
- Article 150: accounts of Union and states kept in the form prescribed by President on advice of CAG
- Article 151: CAG reports are laid before Parliament/state legislature
- CAG audits three categories: compliance audit, performance audit, and financial audit
- State Finance Audit Reports: annual reports by CAG on each state's financial position — the source of this AP finding
Connection to this news: The CAG's State Finance Audit Report on Andhra Pradesh is a constitutionally mandated report — its revelation of 357-day RBI dependence is precisely the kind of systemic fiscal risk that constitutional audit institutions are designed to surface.
RBI's Short-Term Liquidity Instruments for States: WMA, SDF, and Overdraft
The RBI acts as the banker to state governments under Section 21A of the Reserve Bank of India Act, 1934. To manage temporary cash flow mismatches — the gap between timing of government receipts (tax collection, grants) and payments (salaries, scheme disbursements) — the RBI provides three graduated facilities:
Special Drawing Facility (SDF): Secured borrowing by states against their investments in the Consolidated Sinking Fund (CSF) or Guarantee Redemption Fund (GRF). Interest rate: 1 percentage point below the repo rate (cheaper option).
Normal Ways and Means Advances (WMA): Unsecured short-term advance with no collateral. Interest rate: at the repo rate. Limit set by RBI based on past expenditure patterns.
Overdraft (OD): Triggered when SDF + WMA limits are exhausted. Interest rate: repo rate + 2 percentage points (most expensive). States can avail Overdraft for a maximum of 14 consecutive days.
- These facilities are designed as temporary bridges (days to weeks) — NOT for financing structural deficits
- Andhra Pradesh used Overdraft for 107 days — exceeding what is intended as a very short-term instrument
- Interest differential: OD at repo + 2% vs. SDF at repo − 1% = a 3-percentage-point cost premium for fiscal mismanagement
- RBI Act Section 21A: governs the "banker to state governments" relationship
- Consolidated Sinking Fund: state-level fund for retiring market borrowings; investments pledged for SDF access
Connection to this news: AP's use of Rs 56,631 crore in Overdraft for 107 days — the most expensive RBI facility — is the most alarming finding in the CAG report, indicating that the state repeatedly exhausted both its SDF and WMA limits throughout the year.
FRBM Act and Fiscal Responsibility Framework
The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 mandates fiscal discipline at both Central and state levels. For states, corresponding State FRBM Acts specify annual fiscal deficit limits (typically 3% of GSDP under normal circumstances, with escape clauses for special circumstances).
Excessive reliance on RBI's short-term facilities is a symptom of a deeper problem: a state whose expenditure commitments — including committed expenditure like interest payments, salaries, and pensions, plus politically mandated welfare transfers — outpace its revenue generation capacity.
- FRBM Act (2003): requires eliminating revenue deficit; maintaining fiscal deficit within limits; establishing Medium-Term Fiscal Policy
- NK Singh Committee (2017): revised FRBM framework; recommended fiscal deficit target of 2.5% of GDP for Centre by 2022–23; similar framework for states
- Article 293(3): states cannot borrow without Central government consent if outstanding Central loans exist — gives Centre leverage over fiscally stressed states
- 15th Finance Commission: recommended 3% fiscal deficit for states; additional 0.5% allowed for power sector reforms; 0.5% for COVID response (now lapsed)
- Andhra Pradesh: bifurcated from undivided AP in 2014; has faced structural revenue stress compounded by welfare schemes (Rythu Bharosa, YSR schemes) and post-bifurcation asset-liability settlement disputes
Connection to this news: The CAG report quantifies the cost of Andhra Pradesh's fiscal imbalance — Rs 303 crore in interest on temporary RBI borrowings — which is a direct indicator that the state's FRBM compliance is more formal than substantive, as the treasury is perpetually in deficit.
Key Facts & Data
- AP availed Rs 1.72 lakh crore total through SDF + WMA + OD in 2024-25
- SDF: Rs 42,004 crore, 71 days, interest Rs 188.82 crore
- WMA: Rs 73,897 crore, 179 days, interest Rs 82.30 crore
- Overdraft: Rs 56,631 crore, 107 days, interest Rs 32 crore
- Total interest paid on RBI short-term borrowings: Rs 303 crore
- Days without RBI borrowing: only 8 of 365 (i.e., 357 days in deficit)
- Article 148: CAG — appointed by President; removed by parliamentary address
- FRBM Act (2003): mandates revenue deficit elimination and fiscal deficit limits for states
- OD interest rate: Repo rate + 2%; SDF rate: Repo rate − 1%
- Overdraft maximum: 14 consecutive days (design intent vs. 107-day actuality for AP)
- RBI Act Section 21A: RBI as banker to state governments