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CAG red-flags State’s fiscal deficit, debt

The Comptroller and Auditor General of India (CAG) has pointed out lapses, both constitutional and procedural, in financial management by the State government. 

Published: 27th November 2021 09:06 AM  |   Last Updated: 27th November 2021 09:06 AM   |  A+A-

By Express News Service

VIJAYAWADA: The Comptroller and Auditor General of India (CAG) has pointed out lapses, both constitutional and procedural, in financial management by the State government. The audit report for the financial year 2019-20 was tabled in the State Legislature on Friday. 

Some of the prominent issues red flagged by the CAG are: a) non-disclosure of off-budget borrowings running up to Rs 26,096.98 crore in budget documents; b) transfer of Rs 1,100 crore related to the State Disaster Relief Fund to personal deposit account in violation of rules; c) 80% of borrowings utilised to balance revenue accounts affecting asset creation; d) “unacceptable” argument to amend the Fiscal Responsibility and Budgetary Management Act in December 2020 to reset targets relating to the five-year period from 2015-16 to 2019-20; and e) effective capital expenditure amounted to just 0.72% of the GSDP and finally, unsustainable level of debt to GSDP ratio. 

Expressing concern over the ballooning debt, the CAG explained that the debt to GSDP ratio has been increasing rapidly except during 2017-18 and pointed at the “probability of debt not being sustainable. During the period 2015-16 to 2019-20, approximately, 65-81% of the borrowed funds were used for repayment of debt. Which shows the State is borrowing primarily for restructuring of previous debts than for infrastructure creation. However, the State government attributed the increase in debt to its resource constraints pursuant to the bifurcation of the State and inadequate assistance from the Centre.

During 2019-20, the outstanding public debt shot up by 17.20% (Rs 32,373 crore) over the previous year.The CAG also dwelt at some length on amendment made to the FRBM Act in Dec, 2020. It felt fiscal targets as per the amended Act were at variance with the XIV Finance Commission’s figures for fiscal balance. The government argues that the FRBM Act had to be amended as the State’s economy changed structurally due to bifurcation in 2014-15. But the CAG found the argument unacceptable. It said the fiscal deficit would increase to Rs 65,000-odd crore if off-budget borrowings are taken into consideration and that would mean, fiscal deficit would have been 6.76% of the GSDP.

The silver lining, however, is the State GDP grew by 12.73 % compared to the national average of Rs 7.21% in 2019-20. In the same way, most of the expenditure was incurred on welfare schemes. “Revenue deficit during 2019-20 (Rs 26,441 crore) was substantially higher than the Budget Estimates (Rs 1779 crore) due to the introduction of new schemes like Amma Vodi and YSR Nine Hours Free Power Supply,” the report said, adding that as a result revenue deficit spiked up to 23.81% compared to 12.12% in 2018-19. In other words, by 90.24%. 

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

The share of expenditure on education was also higher in the State compared to other general category states while it was marginally lower in respect of health sector. The CAG observed that the government’s failure to assess its revenues realistically and not containing revenue expenditure resulted in the high revenue deficit despite receipt of post-devolution revenue deficit grant from the Centre. As per the report, revenue receipts decreased by 3.17% compared to the previous year mainly due to reduction in own tax revenue and tax transfers from the Centre. On the other hand, revenue expenditure increased by 6.93% due to new welfare schemes. 

It also found fault with the government for not expending enough on asset creation. Capital expenditure came down by 38.72% compared to the previous year. It was less than 15% of the total expenditure in the five-year period from 2015-20.“This reflects poorly on the State’s commitment towards infrastructure creation,” the report said. The quality of expenditure on physical infrastructure was lower than the average of other general category states. The CAG faulted the government for “inflating” figures on capital expenditure, citing instances of “miscalculation of revenue transactions under capital section” and transfer of Rs 900-odd crore to personal deposit accounts from capital heads. In effect, the capital expenditure was Rs 6,998.51 cr  which amounts to only 0.72% of the State GSDP, it said.

On SDRF funds, the auditor observed that the government transferred Rs 1,100 crore to personal deposit account by showing the expenditure under Major Head -Disaster Relief and Rehabilitation — which it said was in violation of the Appropriation Act. “Booking the expenditure without actually incurring it raises questions about the accuracy of expenditure figures... guidelines of SDRF allow adjustment of expenditure only for providing immediate relief,” it opined. 

However, the State government in its reply, defended the action, saying the funds were demarcated for pandemic related expenditure and were utilised in the following financial year - 2020-21. The CAG also said the Centre released Rs 16,608.72 crore and Rs 11,781.33 crore towards implementation of 72 and 59 Centrally-Sponsored Schemes during 2018-19 and 2019-20 respectively. In respect of 30 of these schemes during 2018-19 and 32 schemes during 2019-20, the State government expended 43.38% and 59.68% of the total releases, leaving the balance amount unutilised. However, the State government stated that a majority of the grants from the Centre were received at the fag end of the financial year which resulted in under-utilisation of funds.

Other issues

  • State govt tabled supplementary budget estimates in the legislature in June 2020, that is after the closure of the financial year. It undermines legislature oversight
  • State govt didn’t release Rs 311.46 cr and Rs 170.57 cr of Finance Commission grants to Panchayat Raj Institutions and ULBs over the period 2015-20
  • Operation of PD Accounts lacked clarity and transparency as huge amounts shown 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 point to inadequate internal controls and deficient monitoring mechanism
  • 73 incomplete irrigation projects — taken up between 2003 and 2017


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