State Finances Discrepancies in India: CAG Audit Reports

The Comptroller and Auditor General (CAG) of India's State Finances Audit Reports for 2024-25 reveal significant discrepancies in the reported financial deficits of seven Indian states: Bihar, Chhattisgarh, Gujarat, Karnataka, Kerala, Maharashtra, and West Bengal. These reports, presented during the Monsoon Session of Parliament, highlight understated financial gaps.

Key Findings

• Revenue and Fiscal Deficits:
  • Post-audit recalculations show increased deficits across all states.
  • Chhattisgarh's revenue deficit rose from ₹5,099 crore to ₹10,246 crore after audit adjustments.
  • Gujarat's revenue surplus shrank from ₹18,943 crore to ₹7,014 crore, with an increase in fiscal deficit by ₹12,383 crore.
  • Bihar's revenue deficit expanded from ₹357 crore to ₹2,501 crore.
  • Maharashtra's fiscal deficit increased by over ₹20,000 crore when off-Budget borrowings were included.
• Misclassification of Expenditure:
  • States commonly misclassified revenue expenditure as capital outlay, inflating capital expenditure.
  • Examples include Maharashtra (₹4,070 crore), Karnataka (₹2,021 crore), Chhattisgarh (₹1,235 crore), and West Bengal (₹1,032 crore).
• Off-Budget Borrowings:
  • States kept debt off the books through borrowings by state-owned entities, serviced from state budgets.
  • Kerala excluded ₹39,230 crore of off-budget borrowings from its liabilities.
• Non-Transfer of Cesses and Future Obligations:
  • Non-transfer of earmarked cesses to dedicated funds; Gujarat withheld ₹4,169 crore (motor spirit cess) and ₹3,519 crore (labour cess).
  • Under-remittance of employees' National Pension System contributions noted, e.g., ₹3,278 crore in Maharashtra.
• Opaque Accounting Practices:
  • Extensive use of "800 – Other Expenditure" head obscures expenditure details.
  • Kerala allocated ₹7,164 crore under this head, making up 4.19% of its total expenditure.

Conclusion: The CAG reports highlight systemic accounting issues affecting the transparency and accuracy of state financial accounts. These practices, including misclassification and non-disclosure of liabilities, can have long-term fiscal implications, distorting the true financial health of states.