After EC, now CAG works to red-flag freebies, state largesse

Sources said the issue of “financial sustainability” of states came up during the meeting of CAG’s Audit Advisory Board (AAB) earlier this week.

The board, headed by CAG Girish Chandra Murmu, provides “suggestions” to the body on matters relating to “audit, including coverage, scope and prioritization of audits.”

The 21-member board, headed by Murmu, has 10 external members: Ashok Gulati, agriculture economist; Dr Devi Prasad Shetty, Chairman and Executive Director, Narayana Health; H K Dash, retired IAS officer; Makarand R. Paranjape, academician; Manish Sabharwal, Chairman, Team Lease Services; Maroof Raza, retired Indian Army officer; Nitin Desai, fellow, TERI; Ravindra H. Dholakia, economist; Suresh N Patel, Central Vigilance Commissioner; and S M Vijayanand, retired IAS Officer.

Arguing that most of the states have become “revenue deficit” post pandemic, sources said the meeting discussed how such states are not able to manage their expenditure from their revenue resources.

The top audit body is also looking at the repayment liabilities of states in the next six years. “We have seen most of the states will have a real issue — repayment. Whatever they have borrowed earlier, the repayment burden is so much that half of their budget will go, in many places, in only repaying. That is not sustainable,” a source said.

The CAG has been highlighting issues related to subsidies and other expenditures in the states’ budgets but in the proposed mechanism it will also focus on off-budget borrowings, discounts and write-offs.

Sources said the audit body has compiled the “relative status of debt, borrowings, subsidies — whether they are freebies or not — guarantees, and their sustainability.”

The source said, “We are going very strictly from the current year… We are saying that this is not sustainable. Whatever you are doing, your financial management will go haywire. You will not be able to sustain this and the state will have a problem.”

Audit authorities, at present, look into subsidies but remission and relaxations do not get captured in subsidies.

For instance, interest subvention on loans, money given to discoms, loan waiver, are among some elements that are captured by the CAG “occasionally but not systematically,” said an official.

There was also a suggestion at the meeting to look into the range of freebies on offer. “States are distributing things like TV, laptops, bicycles, grinder, mixer… There are things which do not get reflected in the subsidy… So we have to develop parameters as to how to capture them,” the source said. Besides, there was a discussion on financial resources of the states.

Asked what options the CAG has, the source said, “We plan to show a red flag. We are strengthening our observations from time to time and after this Audit Advisory Board’s submissions, we will look into what we can do more.”

It is learnt that “almost 80 per cent work of the accounts for financial year 2022-23 has already been done,” said a source. “So we will see what we can do at this stage.”