CAG warns Gujarat government against 'unsustainable debt'

Jul 26 2014, 12:45 IST
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Gujarat's growth rate seems to be headed downhill.(Reuters) Gujarat's growth rate seems to be headed downhill.(Reuters)
SummaryCAG warns the Gujarat government against it's 'increasing fiscal liabilities'.

The Comptroller and Auditor General of India (CAG) warned the Gujarat government against it's "increasing fiscal liabilities" on Friday, which the country's premier auditor felt might lead to a situation of "unsustainable debt" in the medium to long term.

"The outstanding fiscal liabilities have shown a steady increase over the years, from Rs 1.05 lakh crore in 2008-09 to Rs 1.66 lakh crore in 2012-13," stated a CAG report on "State Finances" that was tabled in the state legislature.

Asking the state government to mobilise additional resources the auditor states, "The increasing fiscal liabilities accompanied with negligible rate of return on government investment and inadequate cost recovery on loan advanced, might lead to a situation of unsustainable debt in the medium to long run, unless suitable measures are initiated to mobilise additional resources through tax and non-tax revenues."

Stating that Gujarat's fiscal deficit as percentage to GSDP was 2.37, which was within the prescribed limit of three percent at the end of 2012-13, the CAG report points out that the fiscal deficit of the state had "increased from Rs 10,438 crore in 2008-09 to Rs 16,492 crore in 2012-13."

Gujarat's growth rate seems to be headed downhill. According to the figures stated in the latest CAG report, the growth rate of GSDP of the state was just 13.98 percent during 2012-13. This is a far cry from the 22.99 percent growth rate the state clocked in 2010-11. The state's GSDP growth rate stood at 15.33 percent in 2011-12.

CAG has also asked the state government to be more prudent in using borrowed funds. "Continued use of borrowed funds to fund investments which do not have sufficient returns will lead to an unsustainable financial position. The government may ensure proper justification for investment in high-cost funds," the auditor added.

"The state government had invested Rs 47,171 crore in statutory corporations, government companies, rural banks, joint stock companies, co-operative institutions and local bodies (as on March31, 2013). The average return on the investments was 0.24 percent in the last five years, while the government paid an average of 7.66 as interest on its borrowings between 2008-13," it pointed out.

"During the period 2008-13, about 92 percent of the developmental loans were raised through OMB ( Open Market Borrowings) and the development loans raised were in excess of total development expenditure by Rs 2,482 crore, defeating the very purpose of raising the loan to finance the formation of productive

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