CAG flags non-adherence to FRBM Act, lack of clarity in PD accounts

In February 2022, the government had said that the delay in implementing the amended Act was due to the State’s bifurcation and shifting of capital.
Comptroller and Auditor General of India building is used for representational purposes. (Photo | PTI)
Comptroller and Auditor General of India building is used for representational purposes. (Photo | PTI)

VIJAYAWADA: The State government has not adhered to the targets prescribed under the AP Fiscal Responsibility and Budget Management (APFRBM) Act with respect to fiscal deficit and outstanding liabilities, a report of the Comptroller and Auditor General of India (CAG) revealed.

The State Finances Audit Report for the year ending March 31, 2021, tabled in the Assembly on Wednesday, also noted that outstanding public debt at the end of March 2021 increased by 15.39% (Rs 46,444 crore) over the previous year. It also flagged the lack of transparency in the operation of Personal Deposit (PD) Accounts.

Pointing out that the State government amended the APFRBM Act in December 2020 which was deemed to come into force from August 30, 2020, the report said, “The projections on fiscal parameters were, however, amended by the government retrospectively with effect from the financial years 2015-16 to 2020-21. The government had not adhered to the targets prescribed under the APFRBM Act with respect to fiscal deficit and outstanding liabilities.”

In February 2022, the government had said that the delay in implementing the amended Act was due to the State’s bifurcation and shifting of capital. The report stated that the government’s response was not acceptable, as the fiscal projections, by their very nature, are generally for future years and the APFRBM has to be amended based on the recommendations of each Finance Commission.
Stating that the fiscal parameters of the State as reflected in its revenue, fiscal and primary deficits, were negative during the five-year period from 2016, the CAG report revealed that there were instances of mis-classification of revenue transactions under capital section and non-accountal of other liabilities, further pushing the deficits.

The CAG report said the outstanding liabilities were above the targets prescribed in the revised APFRBM Act and that the liabilities of the State have been increasing year-on-year. Majority of the borrowings during the year 2020-21 were utilised to balance revenue account of the State, affecting asset creation.

On finances, the CAG said the State witnessed an increase of 5.50% in revenue receipts during the year 2020-21 as compared to the previous year due to increase in transfers from the Centre.Meanwhile, the revenue expenditure shot up by 11.06% during 2020-21, resulting in rise of revenue deficit in the State by 34.42% as compared to the previous year.

Observing that sound budgetary management required advance planning and accurate estimation of revenues and expenditure, the CAG noted, “There were instances of incurring excess expenditure on large savings with reference to provisions made during the year, which point to flaws in expenditure monitoring and control. A majority of controlling officers did not explain the reasons for variations in expenditure vis-a-vis allocations to the principal accountant general, affecting the government’s accountability mechanism and weakening legislative control over expending public finances.”

On operation of PD Accounts, the report said it lacked clarity and transparency as huge amounts were shown to have been transferred to these accounts during the year, but were not actually made available to the departmental officials for incurring expenditure.

“About one-third of the budgeted funds were shown as closing balance in PD Accounts, while the State had huge revenue deficit. The data in Comprehensive Financial Management System (CFMS) related to balances did not match the pre-CFMS legacy data. Further, there was a big gap in the number of PD Accounts and the amount lying in these accounts as per CFMS and Finance Accounts, which requires reconciliation,’’ the report said.

Transferring of funds from the Consolidated Fund of the State to PD Accounts without incurring actual expenditure, resulted in inflation of expenditure and lack of legislative scrutiny.“It is imperative to curtail the usage of Personal Deposit Accounts to maintain the sanctity of budgetary process. Non-submission of accounts by Autonomous Bodies, Development Bodies/Authorities and Public Sector Undertakings (PSUs) was in violation of prescribed financial rules and directives.

These point to inadequate internal controls and deficient monitoring mechanism of the State government departments. Under utilisation of Grants-in-Aid provided by the Government of India for implementation of Centrally-Sponsored schemes defeats the envisaged objectives of implementing the schemes and could affect release of further grants from the Centre,’’ the CAG observed.

CAG’s key concerns

  • Outstanding debt increased to K3,48,246 cr in 2020-21 from K2,01,314 cr in 2016-17, a spike of 72.99%
  • Public Debt of composite State of AP was K1,66,522 cr as of June 1, 2014. Post-bifurcation AP was allocated a debt of K97,124 cr on population basis. Public debt shot up to K2,67,948 cr by March 2021 (an increase of 176% over that of 2014-15)
  • Total outstanding liabilities of the State to GSDP during 2020-21 was over the target of 35%, which includes the additional borrowing limit of 2% of the GSDP provided by Centre for the year 2020-21

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