Monsoon session of Himachal Assembly: 42% increase in fiscal liabilities of state in 5 years, says CAG

The growth rate of fiscal liabilities consistently declined from 14.68 per cent in 2016-17 to 6.14 per cent in 2018-19. The ratio of fiscal liabilities to GSDP also showed a decreasing trend, but was still higher than the norms recommended by the 14th Finance Commission and projected in the Medium
Term Fiscal Policy Statement (MTFPS).

The total public debt of the state government increased from Rs 25,729 crore in 2014-15 to Rs 36,425 crore in 2018-19, registering an annual average growth rate of 9.60 per cent, and the share of market borrowings in total public debt went up from 59 per cent to 65 per cent during this time, according to the audit report. In 2018-19, the public debt increased by five per cent over the previous year.

The report analysed the state’s debt sustainability, or its ability to service its debt, from 2014-15 to 2018-19, using the ED Domar model (which states that the necessary premise for ensuring the stability of public indebtedness is that the interest rates for government loans should not exceed the growth rate of GDP).

This necessary condition was satisfied during the period 2014-18, but in 2018-19, the real interest rate exceeded the real growth rate. However, the state had primary surplus during that year, leading to an undefined situation. The debt to GSDP ratio was around 24 to 26 percent during the five years and has remained stable, the report said.

It added, however, that factors such as the Covid-19 pandemic and its impact on economic indicators also have to be reckoned in assessing the debt sustainability/stability of the state and these factors have not been considered in the analysis.

Interest payments consumed 9 to 11 per cent of revenue receipts during the five years and the public debt-GSDP ratio consistently decreased from 2016-17 to 2018-19, it said.
The report said that in the next ten years, out of total outstanding market loans and Ujwal Discom

Assurance Yojana (UDAY) bonds of Rs 26,573 crore, the state has to repay principal of market loans and UDAY bonds of Rs 25,005 crore (94.10 per cent) and interest amounting to Rs 12,521 crore.
It further said that in 2020-21, Himachal will have to resort to additional borrowings to meet its public debt liabilities of around Rs 5,649 crore.

100 per cent surrender of grant in 60 schemes

The report found that on account of non-implementation or slow implementation of schemes/programmes, around 79 per cent of a total provision of Rs 2,952 crore under 155 sub-heads was surrendered, including 100 per cent surrender under 60 schemes such as the vocationalisation of secondary education, a road improvement scheme and a rural livelihood scheme.

“Surrender of funds on the last working day (March 31, 2019) indicated weak financial controls and resulted in non-utilisation of funds for other developmental purposes,” the report stated.
It also recommended that all departments should submit realistic budget estimates to avoid large savings/excesses, re-appropriations and surrenders at the end of the year so that public money can be used in other areas.

Other Findings

# The state government reported 44 cases of misappropriation/loss, theft etc of government money amounting to around Rs 94 lakh upto March 2019 on which final action was still pending. FIRs had been lodged in all cases and 41 of the 44 cases were more than five years old. These include 35 cases of misappropriation/loss of material and 9 cases of theft across 13 departments. The public works department had the maximum number of such cases (15) while the home guard and forest departments had the maximum amount involved (Rs 25 lakh and Rs 22 lakh respectively).

# 2,407 of the 5,758 utilisation certificates due in respect of grants aggregating Rs 5,128 crore were pending as on March 2019. “There is no assurance that the amount of Rs 1,899 crore crore has actually been incurred for the purpose for which it was sanctioned by the legislature. High pendency of UCs is fraught with risk of misappropriation of funds and fraud,” the report said, recommending timely submission of UCs.

# Himachal has not yet amended the Fiscal Responsibility and Budget Management (FRBM) Act as recommended by the Fourteenth Finance Commission. The Act was required to be amended to provide for the statutory flexible limits on fiscal deficit, and to provide a statutory ceiling on the sanction of new capital works to an appropriate multiple of the annual budget provision.

# “The drawing of advances through AC Bills without a mechanism for their identification/distinction and subsequent lack of monitoring entails risk of misappropriation/malfeasance, and parking of funds in bank accounts outside the consolidated fund of the state with the resultant effect of overstatement of expenditure,” the report said.