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CAG cautions Tamil Nadu on fiscal liabilities

T. Ramakrishnan

They may lead to an unsustainable situation in the long run, warns report

CHENNAI: The Comptroller and Auditor General (CAG) has cautioned the State government that the increasing fiscal liabilities, combined with negligible rate of return on government investments and inadequate interest cost recovery on loans and advances, may lead to an unsustainable situation in the medium to long term.

To avert the situation, “suitable measures” should be initiated to compress non-plan revenue expenditure (NPRE) and mobilise additional resources, through tax and non-tax sources, in the coming years, according to the CAG report (civil) for 2007-2008 placed in the Assembly on Tuesday.

Analysing the expenditure pattern of the government, the report concluded that though revenue expenditure as a percentage of the total expenditure indicated a declining trend, it accounted for about 82 per cent of the total expenditure during 2007-2008.

Its NRPE component at Rs.34,678 crore exceeded the 12th Finance Commission’s normative projection for the year by Rs.5,061 crore.

Even within the NRPE, four elements – salary expenditure, pension liabilities, interest payments and subsidies – constituted about a sizeable 75 per cent. “These trends in expenditure indicate the need for changing allocative priorities.”

Noting that the State achieved revenue and fiscal deficits targets relative to the Gross State Domestic Product (GSDP) laid down for the year under the rules of the Fiscal Responsibility and Budget Management Act, the CAG report stated that the improvement in the fiscal position was mainly on account of increase in revenue surplus.

In 2007-2008, revenue receipts went up by Rs.6,607 crore [compared to the previous year] whereas revenue expenditure rose by Rs.4,710 crore.

This resulted in an increase of revenue surplus of Rs.1,897 crore.

The improvement in revenue surplus of the State was attributed to the fact that about 74 per cent of the incremental revenue receipts were contributed by Central transfers, comprising the State’s share in Central taxes and duties, besides the Centre’s grants-in-aid.

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