CAG report points out weaknesses of Indian economy

Our Economic Bureau

New Delhi, Aug 10: After Standard and Poor’s (S&P’s) and Moody’s, it is now the Comptroller and Auditor General (CAG) which has highlighted weaknesses of the Indian economy by stating that “central finances are more vulnerable now than before”.

The CAG report, tabled in the Parliament on Friday, said: “Union finances have become less adequate, less autonomous, and more vulnerable during the nineties.” Voted expenditure as proportion of total disbursement has fallen from 44.51 per cent in 1992-93 to 31.94 per cent in 1997-98.

The report said although by 1999-00, the ratio recovered to 35.68 per cent, it still showed that the degree of autonomy in the application of resources was low and has fallen over the ten-year period in the nineties.

It added that repayment as percentage of borrowing has increased from 72.73 per cent in 1990-91 to 86.74 per cent in 1999-00 indicating that only about 13 per cent of current borrowing was usable for current services.

The report said that interest ratio has also increased from 25.47 per cent to 33.6 per cent, showing increasing loss of autonomy in using current resources for current applications.

Revenue deficit, as percentage of fiscal deficit, has increased from 40.4 in 1990-91 to 59.43 in 1999-00, exhibiting an increase of about 20 percentage points. To that extent, the report said, fiscal deficit was not being used for creating assets, “finances become vulnerable because of liabilities are being added without addition to capacity for repayments.”

According to the report, capital expenditure of the Union government has constantly declined as percentage of GDP after the initiation of the economic reforms programme in 1991.

The capital expenditure of the Union government fell from 2.35 per cent of the GDP in 1990-91 to 1.48 per cent in 1990-00. It added that loans and advances slipped from 3.64 per cent to 1.4 per cent during the period.

The report further said that erosion of tax-GDP ratio led to fall in government expenditure, both revenue and capital. It was 17.54 per cent of the GDP in 1999-00, down from 18.1 per cent in 1990-91.
The report said that interest payments and pensions had mounted.
“While plan revenue expenditure has grown at a trend growth rate of 14.43 per cent per annum over the nineties, plan capital expenditure has grown at a dismally low tax-GDP ratio of 2.68 per cent during the period.”