Andhra govt pulled up by CAG for condition of state finances

CAG said that liabilities of the state have been increasing year-on-year, and that the AP govt needed to estimate its resources "more realistically" and manage its expenditure "judiciously".
Andhra govt pulled up by CAG for condition of state finances
Andhra govt pulled up by CAG for condition of state finances
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Unbridled revenue expenditure and constricted capital expenditure have pushed Andhra Pradesh's finances into disarray, causing a revenue deficit of a staggering Rs 26,441 crore (1,486.28% over the estimate) in the year 2019-20, the Comptroller and Auditor General of India has observed. The CAG strongly rebuked the state government over the gross financial mismanagement, particularly in failing to contain the mounting revenue deficit, and violation of the FRBM Act. 

Meanwhile, the Andhra Pradesh government further amended the Fiscal Responsibility and Budget Management Act, 2005, to enable enhanced borrowings and also allow a larger revenue deficit. The fresh amendment enacted on Friday enhances the "limit the amount of annual incremental risk weighted guarantees to 180% of the total revenue receipts in the year preceding the current year" from the existing 90%.

The CAG found fault with the government over the grossly decreased capital expenditure in the year 2019-20 and said it pointed to the need for a review of the fiscal strategy and creation of the fiscal space for increased capital expenditure, which in turn, would help in promoting and accelerating equitable growth.

The liabilities of the state have been increasing year-on-year, and over 80% of the borrowings during 2019-20 were utilised only to balance the Revenue Account, affecting asset creation. The CAG, in its State Finances Audit Report for the year ending March 2020, observed that the Andhra Pradesh government needed to estimate its resources "more realistically" and manage its expenditure "judiciously".

The CAG report was tabled in the state Legislature on Friday, November 26. The report noted that the state failed to contain revenue deficit during 2015-20, despite receipt of post-devolution Revenue Deficit Grants (to the tune of Rs 22,112 crore) from the Union government as per the 14th Finance Commission recommendations.

Revenue deficit of Rs 26,441 crore in 2019-20 was substantially higher than the Budget estimates (Rs 1,779 crore) due to the introduction of new schemes like Amma Vodi (Rs 6,349.47 crore) and nine-hour free power supply to the agriculture sector (Rs 4,919.84 crore) during 2019-20, and a decrease in state's own revenue of Rs 1,511 crore over the previous year, it said.

Comparatively, the state incurred a capital expenditure of only Rs 12,242 crore, including Rs 1,830.93 crore funded by the Union government, that constituted mere 7.89% of the total expenditure during 2019-20 and fell way short of the Budget estimate of Rs 32,293 crore. It accounted for only 1.26% of the Gross State Domestic Product and decreased by Rs 7,734 crore (38.72%) from the previous year.

The report said there were instances of misclassification of revenue transactions under capital section and non-accounting of other liabilities that would have pushed up the deficits to a further extent.

The outstanding debt of the state showed an increasing trend during the five-year period 2015-20. The debt that was Rs 1,73,854 crore during 2015-16, mounted to Rs 3,01,802 crore in 2019-20, marking an increase of 73.60%, the CAG observed.

The off-budget borrowing liability of Rs 26,096.98 crore has not been disclosed appropriately as part of the state budget documents. "This has the impact of diluting public financial management and oversight role of the Legislature and placing major sources of funding of government's crucial infrastructure projects beyond the control of the Legislature," the CAG remarked.

"Sound budgetary management requires advance planning and accurate estimation of revenues and expenditure. There were instances of incurring excess expenditure or large savings against the provisions made during the year, which point to flaws in expenditure monitoring and control,” the CAG noted. It warned that "persistent excess expenditure" over grants approved by the state Legislature was a violation of the "will of the Legislature" and needed to be viewed seriously.

On the final day of its delayed monsoon session, the state Legislature passed the FRBM Act Amendment Bill introduced by Finance Minister Buggana Rajendranath. A new clause has been inserted in the FRBM Act prescribing higher limits of revenue deficit from 2021-22 to 2025-26 financial years.

For the current year, the revenue deficit limit has been pegged at 3.6% of the Gross State Domestic Product, up from 2.5% in 2019-20, though the actual that year was 3.17%. The revenue deficit limit has been pegged at 3.3% (for 2022-23), 3% (2023-24), 2.7% (2024-25) and 2.4% (2025-26).

Similarly, another new clause has been inserted, prescribing the fiscal deficit limits till 2025-26, including a 0.5% additional borrowing allowed for performance in the power sector. For 2021-22, the fiscal deficit limit has been set at 5% of the GSDP. The limit has been set at 4.5% for 2022-23, 4% for 2023-24 and 2024-25 and 3.5% for 2025-26.

Also, the amendment brought in yet another new clause to "ensure the outstanding total liabilities", excluding government guarantees" were contained within the prescribed limits till 2025-26 fiscal year. For the current year, the limit has been set at 35.6%  of the GSDP. It will be 36.3% in 2022-23, 36.1% in 2023-24, 35.8% in 2024-25 and 35.5% in 2025-26.

Explaining the objects and reasons behind the amendments, the Finance Minister said the "damage inflicted by the state bifurcation had a disastrous impact on the economic and financial parameters". Buggana said the disadvantages arising from the uneven division of resources (between Andhra Pradesh and Telangana) was likely to circumscribe the long-run growth prospects of the state. The outbreak of COVID-19 and the unprecedented measures adopted to contain its spread also had a serious impact on the state's resources, causing a substantial reduction in realisation of its own revenues.

"Horizontal devolution of Central transfers has considerably reduced in the 15th Finance Commission award. These added constraints only compounded the fiscal stress of the state," the Finance Minister said. Hence the amendments to the FRBM Act, he added.

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