Thursday, May 23, 2019 10:10 AM

Amaravati Bonds get Impressive Response, but, Chandrababu Naidu's capital centred model raises several questions on fiscal viability and developmental priorities

The Amaravati bonds issued by the Andhra Pradesh Capital Region Development Authority (CRDA) witnessed an overwhelming response from institutional investors. The bonds were oversubscribed by 1.5 times on the electronic bidding platform of the Bombay Stock Exchange (BSE). The CRDA issued the bonds to raise funds for construction of Capital city of Amaravati.

Enthused by this response, the CRDA is working out the modalities to issue them for retail investors as well. It plans to raise as much as Rs 10,000 crore through this crowd funding exercise.

However, many questions remain on Chandrababu Naidu government's capital model and the manner in which it is generating funds for the construction of the capital. The government seems to be confused between a Greenfield capital and a big city with huge economic potential. This may result in a high cost burden as the economy cannot be transplanted to Amaravati. Besides, the bonds have a high interest rate on them, resulting in greater debt servicing burden. The state is already starved of cash, with high revenue deficit due to what they call arbitrary bifurcation, while it's also facing mounting debt burden. The debt-funded infrastructural development may not generate resources needed to finance this debt.

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Andhra Pradesh's decision to fund new capital with 'Amaravati bonds' has garnered interest, but may prove costly for debt-ridden state



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