State Finances Report of the Comptroller and Auditor General (CAG)

Syllabus: GS2/ Polity and Governance; GS3/ Economy

Context

• Recently the State Finances 2024-25 Report of the Comptroller and Auditor General (CAG) has brought attention to a significant trend in India’s fiscal landscape.

Key Findings of the CAG Report

• Rise in Subsidy Expenditure: The Subsidy expenditure rose to 10.2% of States revenue expenditure in FY 2024-25, compared to the post-pandemic average of around 8.5%.
  • State governments spent nearly ₹4.4 lakh crore on subsidies in FY 2024-25, almost three times the level recorded a decade ago.
  • Karnataka recorded the highest subsidy burden, with subsidies accounting for 14.01% of total expenditure.
• States with Highest Subsidy Burden: Karnataka recorded the highest subsidy burden, with subsidies accounting for 14.01% of total expenditure.
  • Other States with high subsidy expenditure include Madhya Pradesh, Tamil Nadu, Punjab, Chhattisgarh, and Rajasthan.
• Dominance of Revenue Expenditure: Revenue expenditure accounted for more than 83% of total State expenditure.
  • Social and economic services together constituted nearly two-thirds of total expenditure, reflecting the growing emphasis on welfare spending.
• Sector-wise Distribution of Subsidies: Energy subsidies, particularly electricity subsidies, constituted the largest share of total subsidies.
  • Agricultural support, including power and irrigation subsidies, remained another major component of State expenditure.

Concerns Raised by the CAG

• Shrinking Fiscal Space: A large share of revenue receipts is being absorbed by mandatory spending obligations, leaving limited resources for new developmental initiatives.
• Crowding Out Capital Expenditure: Increasing expenditure on subsidies constrain investment in infrastructure, irrigation, education, healthcare, and other productive assets.
• Sustainability Risks: Persistent expansion of subsidy programmes without corresponding growth in revenue leads to higher fiscal deficits and debt levels.

Way Ahead

• The CAG emphasized the need for States to balance welfare spending with developmental expenditure.
• The Subsidy programmes should be periodically reviewed to ensure efficiency, proper targeting, and fiscal prudence.

Source: TOI