Syllabus: GS2/ Polity and Governance
Context
- The Comptroller and Auditor General (CAG) has released a decadal analysis of the fiscal health of India’s 28 states, highlighting a sharp rise in public debt over the last decade.
Key Findings of the Report
- Debt Growth: States’ combined public debt trebled from ₹17.57 lakh crore in 2013-14 to ₹59.60 lakh crore in 2022-23. As a share of GSDP, debt rose from 16.66% (2013-14) to 22.96% (2022-23).
- In FY 2022-23, states’ total debt was 22.17% of India’s GDP.
- State-wise Debt-to-GSDP Ratios (2022-23):
- Highest: Punjab (40.35%), Nagaland (37.15%), West Bengal (33.70%).
- Lowest: Odisha (8.45%), Maharashtra (14.64%), Gujarat (16.37%).
- 8 states recorded debt over 30% of GSDP, while 6 states had debt under 20%.
- Debt and Revenue Receipts:
- States’ debt stood at 128–191% of revenue receipts in the past decade.
- On average, debt equaled 150% of revenue receipts / non-debt receipts.
Reasons for Higher Debt Burden
- Populist Politics: Power subsidies, farm loan waivers, cash transfers, old pension scheme revival, often funded by borrowings.
- Competitive Populism: States like Punjab, Rajasthan, Himachal Pradesh have adopted costly welfare schemes, aggravating fiscal stress.
- Impact of COVID-19: Debt-to-GSDP ratio jumped from 21% (2019-20) to 25% (2020-21) due to contraction in GSDP and additional borrowings.
- Dependence on GST: After GST rollout, states lost independent taxation powers (like octroi, entry tax). GST compensation ended in June 2022, creating a gap.
- Borrowing for Current Expenditure: The report flagged a breach of the ‘golden rule’ of borrowing, which says governments should raise debt only for investment, not to fund operating costs.
- CAG found in 11 states (Punjab, Tamil Nadu, West Bengal, Andhra Pradesh, etc.), more than half of net borrowings were used for salaries, pensions, subsidies rather than infrastructure.
What are the Concerns?
- Crowding Out: Large SDL borrowings push up interest rates, raising borrowing costs for private firms.
- Inflationary Pressures: Excessive debt-fueled spending can fuel inflation, especially when directed at consumption subsidies.
- Interest & Debt Servicing Pressure: Rising share of market borrowings (SDLs) at high interest rates increases repayment burden.
- In some states, 20–25% of revenue receipts go towards interest payments, leaving little for development expenditure.
- Centre-State Fiscal Balance: Central government’s own debt (~57% of GDP in FY24) along with rising state debt (~23% of GDP) push India’s general government debt to ~80% of GDP, much higher than the 60% target under FRBM Review Committee.
| Comptroller and Auditor General of India (CAG) – The CAG is the supreme audit authority of India, responsible for auditing government accounts and ensuring accountability in public finance management. – Articles 148 to 151 of the Indian Constitution provide the framework for the appointment, duties, and reporting structure of the CAG. – The Comptroller and Auditor General’s (Duties, Powers and Conditions of Service) Act, 1971, determines the CAG’s service conditions and prescribes the duties and powers of their office. Audits Reports Submitted by CAG to the President of India – Comptroller and Auditor General (CAG) of India submits three audit reports to the President of India (Article 151). 1. Audit report on appropriation accounts: This report shows how the legislature-granted money was allocated to different heads of expenditure and grants. It also verifies if the money was spent for the intended purpose. 2. Audit report on finance accounts: This report shows the annual receipts and expenditures of the country. 3. Audit report on public undertakings: This report covers the finances and expenditures of various Public Sector Undertakings (PSUs). – After receiving the reports, the President lays them before both houses of Parliament. The Public Accounts Committee (PAC) then examines the reports and submits its findings to Parliament. |
Way Ahead
- Adherence to Fiscal Responsibility: States must align with FRBM targets and ensure debt sustainability.
- Prioritising Capital Spending: Shift away from subsidies and non-productive current expenditures toward investments in infrastructure, health, education that deliver long-term growth.
- Revenue Mobilisation: Strengthening tax collection, rationalising subsidies, and expanding non-tax revenue are key.
- Centre-State Coordination: Transparent debt management and conditional borrowing linked to reforms can improve fiscal discipline.
Source: IE
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