Why CAG is alarmed by Maharashtra's off-Budget borrowings

India Today

2 days ago

The Comptroller and Auditor General (CAG) has sounded an alert on the off-Budget borrowings by the Maharashtra government affecting its fiscal transparency. The statutory auditor has also pointed to the growing stress on the state's public finances.'Financing expenditures through off-Budget borrowings increases the public liabilities of the state substantially over a period of time, leading to a debt trap, without the legislature even knowing that such liabilities are being created,' said the CAG's report on Maharashtra State Finances for 2023-24.advertisementThe report, which was submitted to the state legislature during its recent monsoon session, explained that off-Budget borrowing (OBB) allows the government to meet its expenditure requirements without recording these debts in the Budget, thereby bypassing legislative scrutiny.Such borrowings are often raised through state-owned or state-controlled entities, with repayments ultimately covered by the state government's Budget. 'These borrowings, which are serviced through the state's Budget are effectively considered as the state's own liabilities under Article 293(3) of the Constitution. As outlined in the Maharashtra Fiscal Responsibility and Budget Management (MFRBM) Act and the Rules (2006, amended in 2008), the state government must provide full disclosure of its liabilities including off-Budget However, audit has observed that despite the requirement for transparency, off-Budget borrowings were not disclosed in the Budget documents,' the CAG report said.
The CAG's audit noticed instances wherein the state government had resorted to off-Budget borrowing through the Maharashtra State Road Development Corporation (MSRDC) and MSRDC Tunnels Ltd. These entities had entered into an agreement with financial institutions, guaranteeing repayment through state budgetary allocations to cover the principal and interest payments.'The government of Maharashtra's increasing use of off-Budget borrowings not only affects fiscal transparency but also risks circumventing budgetary controls and legislative oversight. The state government needs to improve its fiscal accountability by ensuring that all liabilities are comprehensively reported in the annual financial statements. Furthermore, these off-Budget borrowings should be brought within the ambit of legislative control to ensure sustainable financial management,' the CAG report said, adding: 'The continuous mismatch between receipts and expenditure indicates rising fiscal stress.'State governments are increasingly turning to populism in their politics. For instance, in Maharashtra, after a drubbing in the Lok Sabha election last year, the erstwhile Eknath Shinde-led regime rolled out a gravy train of welfare schemes. The flagship scheme was the Mukhyamantri Majhi Ladki Bahin Yojana, under which over 25 million women from indigent families were given doles of Rs 1,500 per month in a replica of a similar cash benefit scheme for women in neighbouring Madhya Pradesh.advertisementOther schemes, such as stipends for apprentices, free visits to pilgrimage centres for senior citizens, and even a waiver on the toll on passenger cars levied at the five entry points to Mumbai, served as force-multipliers in the state assembly poll held later that year, which was swept by the Mahayuti.Leaders from the ruling coalition say the Ladki Bahin scheme led to this 'silent' voter segment of women, whose financial and social autonomy is otherwise constrained, voting for them with their feet. By June this year, a scrutiny by the state government has detected that around 885,000 women had claimed more cash doles under the Ladki Bahin Yojana than they were eligible for. The state government also struck off over 2,000 government employees from the list of beneficiaries.The CAG report said that the state has different sources of revenue receipts, such as its own tax revenue, non-tax revenue, devolution of state's share in taxes, grants in-aid from the Union government and non-debt capital receipts. From 2019-20 to 2023-24, the revenue receipts increased by 52.05 per cent, from Rs 2,83,189.58 crore in 2019-20 to Rs 4,30,596.46 crore in 2023-24, at a CAGR (compound annual growth rate) of 11.04 per cent.advertisementAs compared to 2022-23, during 2023-24, its own tax revenue increased by Rs 24,857.06 crore (8.96 per cent), the non-tax revenues rose by Rs 4,081.53 crore (24.33 per cent) and the state's share of Union taxes and duties increased by Rs 11,348.78 crore (18.91 per cent). However, the grants-in-aid from the Union government decreased by Rs 15,368.84 crore (29.89 per cent).The CAG noted that debt as a percentage of the Gross State Domesdatic Product (GSDP) has increased to 18.11 in 2023-24 from 17.42 in 2022-23. Additionally, there were off-Budget borrowings during 2022-23 and 2023-24. 'If the current trend is followed, the ratio of debt/GSDP would eventually rise, leading to reduced fiscal flexibility,' it added.Subscribe to India Today Magazine- EndsTune InMust Watch