CAG reports budget deficit and state debt – The New Indian Express


Through Express news service

VIJAYAWADA: The Comptroller and Auditor General of India (CAG) pointed out weaknesses, both constitutional and procedural, in the financial management of the state government. The audit report for fiscal year 2019-2020 was tabled in the state legislature on Friday.

Some of the important issues reported by the CAG are: a) non-disclosure of off-budget borrowing up to Rs 26,096.98 crore in budget documents; b) transfer of Rs 1,100 crore related to State Disaster Relief Fund to personal deposit account in violation of the rules; c) 80% of borrowings used to balance income accounts affecting asset creation; d) “Unacceptable” argument for amending the law on budgetary responsibility and budgetary management in December 2020 in order to redefine the objectives relating to the five-year period 2015-2016 to 2019-2020; and e) actual capital expenditure was only 0.72% of GSDP and finally an unsustainable level of debt / GSDP ratio.

Expressing concern over the increase in debt, the CAG explained that the debt-to-GDP ratio had increased rapidly, except in 2017-2018 and underlined the “probability that the debt is not sustainable”. During the period 2015-2016 to 2019-2020, around 65-81% of the borrowed funds were used for debt repayment. This shows that the state borrows mainly for the restructuring of previous debts than for the creation of infrastructure. However, the state government attributed the increase in debt to its resource constraints due to the state bifurcation and insufficient assistance from the Center.

During the period 2019-2020, the outstanding public debt increased by 17.20% (Rs 32,373 crore) compared to the previous year. The CAG also dwelled at length on the amendment made to the FRBM law in December 2020. The amended law contradicted the figures for the balanced budget of the XIVth Finance Committee. The government argues that the FRBM law had to be changed because the state economy changed structurally due to the bifurcation in 2014-15. But the CAG found the argument unacceptable. He said the budget deficit would increase to Rs 65,000 crore if off-budget borrowing was taken into account, which would mean that the budget deficit would have been 6.76% of the GSDP.

The silver lining, however, is that the state’s GDP grew 12.73% from the national average of Rs 7.21% in 2019-20. Likewise, most of the expenditure has been devoted to social protection schemes. “The income deficit in 2019-2020 (Rs 26,441 crore) was significantly higher than budget estimates (Rs 1,779 crore) due to the introduction of new programs like Amma Vodi and YSR Nine Hours Free Power Supply”, states the report, adding that as the revenue deficit reached 23.81%, up from 12.12% in 2018-19. In other words, 90.24%.

The CAG further said that state spending is mainly focused on social services, which include education, health and social activities. In fact, social activities made up 18% of total state spending, and around 13% was spent on education, sports among others. In this regard, the CAG agreed that “development spending and spending on social services as a proportion of total spending was higher in the state compared to other states in the general category”.

The share of spending on education was also higher in the state compared to other states in the general category, while it was slightly lower for the health sector. The CAG observed that the government’s inability to realistically assess its revenue and not contain revenue expenditure resulted in a high revenue shortfall despite receiving a grant for the Centre’s post-devolution revenue shortfall. According to the report, tax revenues decreased by 3.17% compared to the previous year, mainly due to the reduction in the Centre’s own tax revenues and tax transfers. In contrast, revenue expenditure increased by 6.93% due to the new social protection regimes.

He also criticized the government for not spending enough on asset creation. Investments fell by 38.72% compared to the previous year. This was less than 15% of total spending over the 2015-20 five-year period. “This poorly reflects the state’s commitment to building infrastructure,” the report said. The quality of spending on physical infrastructure was lower than the average for other states in the general category. The CAG criticized the government for ‘inflating’ capital expenditure figures, citing cases of ‘miscalculating income transactions under the capital section’ and transferring around Rs 900 crore to personal deposit accounts from the heads of capital. Indeed, the capital expenditure amounted to Rs 6,998.51, which is only 0.72% of the state’s MSRP, he said.

Regarding SDRF funds, the auditor observed that the government had transferred Rs 1,100 crore to a personal deposit account showing expenditure under the Principal Chief – Disaster Relief and Rehabilitation – which he said , was in violation of the Appropriation Act. “Recording expenses without actually incurring them raises questions about the accuracy of expense figures… SDRF guidelines allow expenses to be adjusted only to provide immediate relief,” he said.

However, the state government, in its response, defended the action, saying the funds were demarcated for pandemic-related expenses and were used in the next fiscal year – 2020-2021. The CAG also said that the Center has released 16,608.72 crore rupees and 11,781.33 crore rupees for the implementation of 72 and 59 programs sponsored by the center in 2018-2019 and 2019-2020 respectively. For 30 of these programs in 2018-19 and 32 programs in 2019-2020, the state government spent 43.38% and 59.68% of the total releases, leaving the balance unused. However, the state government said a majority of the Centre’s grants were received at the end of the fiscal year, resulting in under-spending of funds.

Other issues

  • The state government tabled additional budget estimates in the legislature in June 2020, that is, after the close of the fiscal year. It undermines legislative control
  • The state government did not release Rs 311.46 cr and Rs 170.57 cr in finance commission grants to Panchayat Raj institutions and ULBs during the period 2015-20
  • The operation of the PD accounts lacked clarity and transparency, as huge amounts were said to have been transferred to these accounts but were not actually made available to officials.
  • Non-submission of accounts by autonomous bodies, development bodies / authorities and PSUs. These indicate inadequate internal controls and a weak oversight mechanism
  • 73 unfinished irrigation projects – carried out between 2003 and 2017


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