Off-budget borrowings have landed the State government in trouble with the Comptroller and Auditor General (CAG) yet again with the latter painting a bleak picture of the State finances and noting that such borrowings through the Kerala Infrastructure Investment Fund Board (KIIFB) and Kerala Social Security Pension Ltd (KSSPL) have jacked up the State's overall debt by over ₹16,000 crore.
In its State finances audit report for the year ended March 2021 tabled in the Assembly on Wednesday, the CAG notes that the overall fiscal liabilities of the State rose by 62.51% from ₹1,89,769 crore in 2016-17 to ₹3,08,386.01 crore. Adding to this the KIIFB and the KSSPL's outstanding liability of ₹16,469.05 crore, the overall debt went up to ₹3,24,855.06 crore in 2020-21.
Effective total public debt stands at₹3,19,089.06 crore as the Department of Expenditure, Government of India, had decided that the Goods and Services Tax (GST) compensation of ₹5,766 crore given to the State as back-to-back loan will not be treated as debt of the State.
The KSSPL's outstanding liabilities of ₹10,848.61 crore constituted 65.87% of the total outstanding off-budget borrowing. During 2020-21 alone, Kerala resorted to off-budget borrowings to the tune of ₹9,273.24 crore.
Debt trap
Repeating the warning it had sounded in the audit report for the year ended March 2020, the CAG observes that, ‘These off-budget borrowing will have an impact of increasing the liabilities of the State government, leading to a debt trap over a period of time.” Creating such liabilities without disclosing them in the Budget raises questions both of ‘‘transparency and of inter-generational equity”, the CAG notes.
The CAG has refused to accept the State Finance department’s argument that the KIIFB borrowings are not off-budget borrowings but at the most contingent liabilities. ‘‘The fact remains that the KIIFB has no revenue of its own and the State government has to defray the debt obligations of the KIIFB by transferring its own revenue resources through the Budget every year. As such, these borrowings cannot be treated as contingent liability, but a direct liability on the State’s own resources,’‘ the CAG says.
Pointing out that the Budget is the most important instrument of legislative control, the CAG wants all government borrowings and expenditures to be legitimately covered within the Budget henceforth.
While expenditure on social security pension schemes and critical infrastructure projects are desirable, financing these expenditures through off-budget borrowings raises public debt and goes against the letter and spirit of the Kerala Fiscal Responsibility Act, 2003, it says.
Other observations
The CAG observes that the government should focus on the growth of its own tax revenue and take measures to improve it. The State also needs to closely monitor its debt sustainability and make earnest efforts to maintain a healthy debt-GSDP ratio.
Revenue receipts of the State increased from ₹75,611.72 crore in 2016-17 to ₹97,616.83 crore in 2020-21, recording a growth of 29.10%. However, the State’s own tax revenue, the main source of revenue in revenue receipts, increased by only 13% and its share in revenue receipts decreased from 55.78% in 2016-17 to 48.82% in 2020-21. This points to the poor collection of tax revenue during 2020-21, when the COVID-19 pandemic gripped Kerala, the CAG says.
Revenue expenditure rose from ₹91,096.31 crore in 2016-17 to ₹1,23,446.33 crore in 2020-21, recording a growth of 35.51%.
