A selection from reports of Comptroller and Auditors Generals of India

 

2.3.4.2 Unanticipated expenditure on account of interest charges

It was seen in audit that the components of cost towards interest charges and debt servicing were not identified while submitting the original investment proposal to the Planning Commission. Further, the revised cost estimates prepared in 1991-92 also did not indicate expenditure likely to be incurred on account of debt servicing and interest charges. As on 31 March 2001, Sardar Sarovar Narmada Nigam Ltd (SSNNL) had incurred expenditure of Rs 109.78 Billions, of which, expenditure of Rs 24.13 Billions (22 per cent) was towards interest charges and servicing debt liability.

SSNNL replied (July 2001) that the expenditure on account of interest charges pertained to ‘interest during construction (IDC)’, which is taken as part of project cost. However, since the original cost estimates had not identified the borrowings as a source of funding, the question of expenditure on interest during construction does not arise. (P.  52)

 

2.3.5 Indiscriminate borrowing

The State Government approves the estimates of works to be undertaken in ensuing financial year by SSNNL. Based on the estimates, an annual resource mobilisation exercise is completed by the SSNNL, wherein the equity contribution from State Government to be received, contribution from beneficiary States and market borrowings to be undertaken are indicated. Deficiencies noticed by Audit in market borrowings are discussed in the ensuing paragraphs:

 

2.3.5.1 Mounting debt liability on account of indiscriminate and unsystematic borrowing

The table below gives the details of year wise liability of the SSNNL for repayment of debts along with interest.

(Rupees in Billions)

Year

Debt repayment obligation

Principal

Interest

Total

2001-02

1.57

4.06

5.63

2002-03

3.39

3.45

6.85

2003-04

6.14

3.40

9.55

2004-05

0.62

3.25

3.88

2005-06

3.32

2.28

5.61

2006-07

6.56

1.47

8.03

2007-08

2.68

0.67

3.36

2008-09

0.00

0.61

0.61

2009-10

4.43

0.35

4.79

2013-14

2.41

72.06

74.48

Total

31.17

91.65

122.82

 

SSNNL’s average annual debt liability works out to Rs 9.44 B. The state government had directed (January 1996) the SSNNL to create a sinking fund out of its own resources with ad hoc contribution of around Rs 500 M annually. SSNNL, however neither created such a fund nor proposed any alternative arrangement for liquidating the debt liability arising out of issue of bonds. SSNNL thus without any systematic plan for redemption of the debts went on borrowing for redemption of earlier debts, which resulted in abnormal increase in the expenditure on servicing of the debt. (P. 57)

 

Source: Comptroller and Auditors General of India’s Report for Gujarat (Commercial) for the year ending on 31st March 2001.

 

1.10 Public debt

During the five year period (1996-2001), the total liabilities of the Government of Gujarat had grown from Rs 170.24 Billions to 400.07 Billions (i.e. 27% increase annually). Where as in the year 1996-97 the overall fiscal liability was 20% of the Dross State Domestic Product, in the year 2000-01 it went up to 34%. It was seen that very little of the borrowings are available for investment and other expenditure after meeting the repayment obligations mainly due to the fact that 37 per cent of the net funds available from internal debt and other liabilities were used for repayment of debts. Considering about 135 per cent over all increase in outstanding debt during last five years, the scope of borrowings and availability of funds through borrowings would be reduced further. (P. 19-20)

 

Source: Comptroller and Auditors General of India’s Report for Gujarat (Civil) for the year ending on 31st March 2001.

 

Public debts

The overall fiscal liabilities of the state increased from Rs 201.39 Billions to Rs 453.01 Billions between 1997-2002, at an average rate of 22.82 per cent. These liabilities as ratio to the Gross State Domestic Product (GSDP) increased from 22.2 per cent to 38.2 per cent and stood at 2.83 times of its revenue receipts and 3.48 times of its own resources comprising own tax and non-tax revenue. In addition to these liabilities, the government guaranteed loans of its various corporations and others in 2001-02 stood at Rs 162.19 Billions. Increasing liabilities have raised the issue of sustainability. Fiscal liabilities are sustainable if the average interest paid on these liabilities is lower than the rate of growth of GSDP. However, in Gujarat, average interest rate on fiscal liabilities at 9.76 percent exceeded the rate of growth of GSDP by 3.18 per cent. In four out of five years, average interest rate on fiscal liabilities exceeded the GSDP growth.

 

Source: Comptroller and Auditors General of India’s Report for Gujarat (Civil) for the year ending on 31st March 2002.

 

The Comptroller and Auditor General (CAG) of India has warned that the Gujarat government ‘is gradually getting into a debt trap’ by violating ‘the cardinal rules of debt sustainability’. Not only have revenue receipts and own resources during 1997-2002 failed to increase at the same pace as debts, there is a decline in the net availability of funds from the borrowings, as ‘a large portion of the funds are used up in debt servicing’. Released in the assembly last week, it also warns the state of ‘low returns on investment’ in state projects, ‘use of high-cost borrowing for investment’, and deteriorating ‘ratio of the state’s total financial assets to liabilities’. Taking strong exception to the ‘application of borrowed funds to meet current consumption’, the CAG says, this indicates the inability of the state to expand ‘its developmental activities’.

 

Source: Shah, Rajiv. State getting into debt trap: warns CAG, The Times of India, 03 April 2003.