The buzz around the so-called ‘Amaravati Bond 2018’, floated by the Capital Region Development Authority (CRDA), an entity of the Andhra Pradesh government, for its greenfield capital overshadowed the vigour of the country’s 72nd Independence Day celebrations.
The media prominently ran stories based on a handout from the CRDA Commissioner Cherukuri Sridhar, coincidentally on I-Day, stating that the response to the issuance of bonds on the Electronic Bidding Platform of the Bombay Stock Exchange was “overwhelming” from institutional investors leading to oversubscription by 1.53 times.
The official release said the bonds were issued for Rs 1,300 cr, but the CRDA ended up with Rs 2,000 cr due to oversubscription. The 10-year instrument is offered at a fixed interest rate of 10.32%, paid quarterly, with a five-year moratorium on the principal payment which will be redeemed on a yearly basis for the next five years at 20% every year.
The amount raised through the instrument is proposed to be spent on infrastructure development in the capital. Buoyed by the oversubscription, CRDA authorities further stated that they are working out modalities to raise an additional of Rs 10,000 cr by tapping retail investors through the same window, this time targeting Telugu NRIs.
The CRDA’s move has raised questions over the high-cost borrowings being tapped by the state government headed by Chief Minister N Chandrababu Naidu. There are concerns over the strain it will entail on an already fragile state economy with sagging revenues on account of loss of Hyderabad as its capital after the bifurcation. Naidu’s capital centric model of development might breed regional disparities and politics and sentiment surrounding his dream of building a world class capital at par with Hyderabad and other capital cities such as Chennai, Bangalore and Mumbai in the neighbouring states.
High interest and concerns over repayment
The interest offered by the AP government as a guarantor for the bonds is reportedly on the higher side. The Greater Hyderabad Municipal Corporation and Pune Municipality recently issued bonds with 8.9% and 7.59% interest respectively. The Reserve Bank of India savings scheme comes with 7.75% and small savings with 7.6% interest. The response to CRDA’s bond was obviously overwhelming, considering its high rate of interest in comparison to these schemes.
If the rate of interest is at 10.32% on a quarterly basis for the Amaravati bond, it is certain to work out to around 10.75% if calculated on a yearly basis, says Buggana Rajandranath Reddy, Chairman of the Public Accounts Committee and YSR Congress legislator.
The Amaravati bond also raises doubts over the means of repayment, about which neither the state government nor the CRDA have clarified yet. The funds raised through the bond, according to the CRDA, will be invested in projects which may not yield returns in the near future.
“We do need roads and the other infra facilities in the capital. But the investments made on these projects are unlikely to give returns immediately as there is no capital in the physical sense in Amaravati,” observes Abdul Razak, an urban planning expert from the School of Planning and Architecture in Vijayawada.
In that case, the scope of repayment of debts raised through bonds by the CRDA, the nodal agency for capital building, seems narrowed. If the AP government seeks to find recourse in levying user charges as a medium of debt repayment, it runs counter to CM Naidu’s claims of building a “people’s capital”.
Barring the interim government complex housing the Assembly and Secretariat, for a variety of reasons nothing has come up in the core capital region where Prime Minister Narendra Modi laid a foundation stone two years ago. In contrast, areas surrounding the core capital such as Mangalagiri and Tadepalli are emerging as satellite townships.
Strain on economy
If the state government, as a guarantor, is obligated to repay the debt, it is certain to cause additional strain on the state’s economy. IYR Krishna Rao, former Chief Secretary in the AP government, in an interview to a Telugu daily, observed that the debts being raised by the Naidu government for the capital construction is likely to take the state’s debt-GSDP (gross state domestic product) ratio up to 37%, crossing the ceiling of 28.79%.
Faced with non-cooperation from the Centre after the TDP parted ways with the NDA government and the poor financial condition of the state, Chandrababu is left only with the window of private lending, regardless of the cost of borrowing, to translate his capital dream into reality. He approached the World Bank for Rs 3,800 cr, HUDCO for Rs 7,500 cr and other external agencies. The borrowings expected from lending agencies failed to match the huge cost of the capital project, running into Rs 48,000 cr in its first phase itself. The state government has received only Rs 1,500 cr from the Centre which is quite inadequate to build government complexes such as Raj Bhavan, high court, assembly, secretariat and offices of heads of departments in the administrative capital.
In a feverish bid to face the upcoming election by showcasing whatever the progress he has achieved in his dream capital, Naidu is accused of putting all eggs in one basket. He is sparing no effort to capitalise on sentiments and public expectations over his abilities to transplant a Hyderabad-like capital in Amaravati. It took 400 years to transform Hyderabad into a state capital to be envied. Rome wasn’t built in a day, which Naidu of course knows very well.