Gujarat government needs strong repayment strategy to avoid debt trap, says CAG report

Comptroller and Auditor General of India’s report tabled in the Gujarat Assembly highlighted that the state government must formulate a ‘well thought out’ debt repayment strategy to avoid falling into the debt trap .

The “CAG State Finance Audit Report for the year ended March 31, 2021” was tabled in the Assembly on Thursday, the last day of the budget session.

According to the audit report, the public debt of Gujarat, consisting of internal debt as well as loans and advances received from the Centre, was Rs 3,08,030 crore in 2020-21.

Since much of the debt was to be repaid over the next seven years, the CAG pointed out that it risked “straining” the state budget.

“The maturity profile of the outstanding public debt as of March 31, 2021 indicates that 61% of the total public debt, or Rs 1,87,973 crore, would be repayable within the next seven years, which could put a strain government budget during this period,” according to the CAG report.

He added that the remaining 39% or Rs. 1,20,056 crore would become due for maintenance after seven years.

“Given the increased expenditure incurred on the one hand and the shortfall in revenue on the other, the state government should develop a well-thought-out borrowing and repayment strategy to avoid falling into the trap of debt,” the report said.

The government debt maturity profile of Rs 3,08,030 crore includes internal debt of Rs 2,90,031 crore, and loans and advances worth Rs 17,999 crore from the Union government.

The CAG audit indicated that the total outstanding debt of the Government of Gujarat increased from Rs 3,15,456 crore in 2019-2020 to Rs 3,57,893 crore in 2020-21.

He revealed that the ratio of government debt to GSDP (gross domestic product) ranged from 19.02% to 21.02% over a five-year period, with the ratio of 21.02% in 2020-21 being the highest for the period. .

The CAG noted that internal state government debt, mostly market borrowing, accounted for 82% and 81% of total debt stock in 2019-20 and 2020-21, respectively.

”The share of the revenue deficit in the budget deficit indicates the extent to which borrowed funds have been used for current consumption. The consistently high ratio of revenue deficit to budget deficit indicates that the state government’s asset base is continually eroding,” the CAG said.

Furthermore, the report states that the public debt to GSDP ratio was within a range of 15.99% to 18.01% during the period 2018-21. During this period, the burden of paying interest on public debt varied from 13.39 percent to 17.22 percent of tax revenue, he added.

Stressing the need to look at debt sustainability, the CAG pointed out that the percentage of public debt repayment to public debt revenue had fallen sharply over the previous year.

“Furthermore, during the period 2016-21, while the GSDP grew at a CAGR (compound annual growth rate) of 9.19%, the stock of government debt grew at a CAGR of 11. 49% The above indicators point to the need to examine the sustainability of government debt,” the CAG report states.

(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)

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