State could fall into debt trap in 5 years, warns CAG

After five years, the State government could fall into a debt trap, the Comptroller and Auditor General (CAG) has observed.

“In Tamil Nadu, the greater portion of repayments would happen after five years. Therefore, the government could face challenges after five years and fall into a debt trap,” said the office of CAG in its report on State finances for 2016-17, adding that the maturity profile of the State’s debt indicated a year-on-year increase in its repayment burden.

The outstanding debt grew by 29.85% over the previous year. Interest payments on debt and other liabilities totalling Rs. 20,533 crore constituted 14.64% of the revenue receipts during the year. The rise in the ratio between interest payments and revenue receipts from 13.48 in 2015-16 to 14.64 in 2016-17 was due to increased interest payments (18.07%) compared to the revenue receipts (8.7%).

The CAG report also faulted the State government for having released Rs. 22,815 crore as interest-free loan “in violation” of the terms of a memorandum of understanding signed among the Centre, the State government and the Tamil Nadu Generation and Distribution Corporation (Tangedco) under UDAY (Ujwal Discom Assurance Yojana). The State government should have given Rs. 4,563 crore as grant and Rs. 18,252 crore as interest-free loan.

As for subsidies, the report noted that explicit subsidies were increasing continuously. They went up by Rs. 3,777 crore (30.67%) in 2016-17 compared to the previous year (Rs. 16,092 crore against Rs. 12,315 crore). Among those items covered under this category were food subsidy through public distribution system (Rs. 5,500 crore); tariff subsidy to Tangedco for domestic consumers and those engaged in agriculture and horticulture (Rs. 6,049 crore); and free distribution of clothes to people below the poverty line (Rs. 472 crore).

As for implicit subsidies, the report defined them as those coming in the form of budgetary support to financial institutions, inadequate return on investments and poor recovery of user charges. Free supply of wet grinders, mixies and fans, marriage assistance scheme and free supply of uniforms, bicycles and laptops to school and college students were some of the items falling under the category of implicit subsidies.

The report observed that the accounting “does not transparently disclose the nature of expenditure [incurred on the implicit subsidies] as is required.” The government had spent Rs. 4,434 crore in 2016-17 compared to Rs. 6,156 crore the previous year.

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