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CAG critical of Govts use of financial resources
December, 08th 2007
Calls for reforms in budgetary operations

While the fiscal policy has a crucial role to play in maintaining the macroeconomic stability, the report said its efficacy depends upon the structure of fiscal deficit.

G. Srinivasan

New Delhi, Dec 7 The Comptroller and Auditor General of India (CAG) has called for measures of reforms in the Union Government finances and accounts, including budgetary operations of the Government, as resources available for use for current services have depleted relative to gross domestic product (GDP).

Stating that inefficiencies in resources use result from the inability to use them in time, delaying projects and programme implementation rigidities such as lapsing of funds and opacities in budget proposals, the CAG said that it is critical that the resources are used with optimal efficiency.


In its report on Accounts of the Union Government, laid in Parliament on Friday, it said the ratios of deficits to GDP and the ratio of revenue deficit to the fiscal deficit show vulnerability of the Union finances to the extent that fiscal deficit is not used for creating assets with no addition to the repayment capacity and no asset backup for the liabilities incurred. This ratio increased from an average of 46.26 per cent during the Eighth Plan (1992-97) to the peak of 124.77 per cent in 2003-04.

It was for the first time that revenue deficit exceeded fiscal deficit. While in the subsequent years the ratio revealed an improvement but it is still considerably higher and exceeds the levels already scaled during the Eighth and Ninth Plan span. Hence, it warned that complete elimination of revenue deficit as mandated by FRBM Act 2003 might need greater efforts.

CAG said the ratio of fiscal deficit to GDP, which had witnessed a sharp improvement in 2003-04 due to augmented recovery of past loans, could not sustain the momentum during subsequent years, although recoveries of loans and advances continued to exceed fresh advances. While the fiscal policy has a crucial role to play in maintaining the macroeconomic stability, the report said its efficacy depends upon the structure of fiscal deficit.

Revenue receipts

On revenue receipts and resource mobilisation, the report said the ratio of revenue receipts to GDP saw a decelerating trend. Compared to the values during the Eighth Plan, the ratio declined to 12.37 during the Ninth Plan and further to an average of 12.29 per cent during the Tenth Plan (2002-07).

Though there was an improvement in tax buoyancy in recent years, this needs to be sustained, it said.

There appeared a positive improvement in return from investment and loans and advances, but recovery of user charges witnessed significant decline over the years. Resource mobilisation efforts, therefore, presented a somewhat mixed picture.

Fiscal liabilities

On management of fiscal liabilities, it said the ratio of assets to liabilities declined consistently from an average of 57.68 per cent during the Eighth Plan to 50.90 in the Ninth Plan and further to an average of 40.26 during the Tenth Plan. The ratio of 37.71 per cent in 2006-07 indicates that over 62 per cent of the aggregate fiscal liabilities of the Union Government did not have any assets backup.

Assets were also growing at a lower rate than the fiscal liabilities.

Overall buoyancy of assets during 1992-2007 was 0.66 indicating that for each one per cent increase in liabilities, assets had grown only at 0.66 per cent.

Buoyancy of assets continued to decelerate from Eighth Plan period to 2003-04 when the assets actually declined over the previous years but in subsequent years buoyancy has picked and was 0.59 in the current year after reaching the peak of 0.98 in 2005-06.

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