CAG warns Gujarat government against 'unsustainable debt'

Written by Avinash Nair | Gandhinagar | Updated: Jul 26 2014, 18:15pm hrs
Gujarat economyGujarat's growth rate seems to be headed downhill.(Reuters)
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 assets," the report added.

Contrary to the political stance taken by the Gujarat government about the "discrimination" meted about by the erstwhile UPA government, the CAG report indicates that there was significant growth in the "grants-in-aid provided by the Government of India between 2008-13. ''The grants-in-aid from GoI increased from Rs 4294 crore in 2008-09 to Rs 6446 crore in 2012-13 (50 percent) mainly on account of increase in grants for State Plan Schemes (67.41 percent) and Centrally Sponsored Schemes (104 percent).

CAG also recommended better "cash management" to the state government. "The investment held in 'Cash Balance Investment Account' by the state government stood at Rs 13,197 crore and Rs 13,358 crore at the end of 2011-12 and 2012-13, respectively. High level of investment held in Cash Balance Investment Account at the end of the financial years indicates the need for better cash management."

Pointing to the 166 cases of outstanding cases of misappropriation, losses and non-recovery in 18 department of the state government, CAG felt that the presence of such cases "indicated lack of efforts by the departments to make good the losses and fix responsibility."