Crisil says that the revised rating is on account of the partial revocation of prohibition in the state and other fiscal initiatives like increase in irrigation tariffs and reduction in rice subsidy. The gross fiscal deficit of Andhra Pradesh also reduced to 3.31 per cent of net state domestic product (NSDP) in 1997-98 from 3.89 per cent in 1996-97. The state's deficit is further budgeted to decrease to 3.26 per cent during the current fiscal.

Over the last two years, the state government has initiated extensive structural reforms encompassing its finances, the state economy, public sector utilities and corporations. These initiatives have resulted in improved finances of thegovernment and have also been successful in attracting significant private sector investments in the industry and infrastructure of the state.

The prominent reform measures undertaken by the Andhra Pradesh government on the fiscal side include partial revocation of prohibition on liquor, curtailment in the expenditure on supply of subsidised rice, freeze on fresh recruitment, hike in power tariffs and increases in water and transportation charges.

The state government has also made considerable progress in the reform of Andhra Pradesh State Electricity Board (APSEB). The proposed reform measures include establishment of an independent regulatory commission, de-bundling of the generation, transmission and distribution entities on operational lines and significant private sector participation.

The performance of the Andhra Pradesh economy has been characterised by a modest growth rate of NSDP in the past. The state's NSDP has grown at a compounded annual growth rate of 5.4 per cent which is lower thanthat witnessed in other states. Andhra's per capita NSDP also lags the national average. Demographically too, Andhra is characterised by a higher growth rate in population than the all-India average. However, the current economic restructuring plan of the state, assisted by the World Bank, is primarily directed towards improvement of the social and economic structure of the state.

The upgrade in the state's rating has also led to a revision in the credit ratings of the debt programmes of four state corporations. The ratings on the debt programmes of all these corporations have been raised to A (SO) from A - (SO).

The Andhra Pradesh State Irrigation Development Corporation (APSIDC), Andhra Pradesh Water Resources Development Corporation (APWRDC), Andhra Pradesh Road Development Corporation (APRDC) and the Andhra Pradesh State Electricity Board (APSEB) have together raised funds through bond issues amounting to Rs 1,873 crore. While APSIDC has raised Rs 62 crore, APWRDC and APRDC have raised Rs 303 croreand Rs 408 crore respectively. APSEB alone has raised Rs 1,100 crore.