Could Off-budget Borrowings Lead to a Debt Trap? CAG Warns Maharashtra Government

Mumbai, July 18 (NationPress) The Comptroller and Auditor General (CAG) of India has indicated in its report concerning Maharashtra State Finances for the financial year 2023-24 that off-budget borrowings (OBBs) significantly impair the state's fiscal transparency. The report serves as a serious caution to the state government about how these borrowings can substantially escalate public liabilities over time, potentially leading to a debt trap. The CAG urged the Maharashtra government to subject these borrowings to legislative oversight to promote sustainable financial management.

According to the report, using off-budget borrowings for financing expenditures can greatly amplify the state's public liabilities over time, often without the Legislature's awareness of such financial obligations being generated. The report was presented in the state assembly by Deputy Chief Minister Ajit Pawar on Friday.

The report highlights that the Maharashtra government's rising reliance on off-budget borrowings not only compromises fiscal transparency but also poses a risk of bypassing established budgetary controls and legislative scrutiny. The state administration is encouraged to enhance fiscal accountability by ensuring comprehensive reporting of all liabilities in annual financial statements. Additionally, these off-budget borrowings should be brought under legislative control for sustainable financial governance.

Off-budget items refer to government borrowings and expenses that are not reflected in the official budget. The CAG’s analysis is particularly pertinent as the Maharashtra government has been increasingly dependent on OBB.

The report stipulates that all government borrowings and expenditures should be properly included in their respective budgets, and the government is obligated to disclose the details of off-budget borrowings made through various state agencies in the Budget and Accounts.

According to the CAG, off-budget borrowing facilitates the government to fulfill its expenditure needs without appearing in the budget, thereby evading legislative oversight. These borrowings are typically raised via state-owned or controlled entities, with repayments ultimately managed through the state's budget. Under Article 293(3) of the Constitution, these borrowings are effectively considered as the state's own financial liabilities.

The CAG's report also mentions that, in line with the Maharashtra Fiscal Responsibility and Budget Management (MFRBM) Act and the Rules (2006, amended in 2008), the state government must provide full disclosure of its liabilities, including off-budget items, in Form B-6 of the Medium-Term Fiscal Policy Statement (MTFPS) for that year.

Nonetheless, the CAG has noted that despite transparency requirements, off-budget borrowings were not adequately disclosed in budget documents. For the MTFPS 2023-24, the state government only reported an outstanding off-budget borrowing of Rs 19.40 crore (outstanding prior to 2004-05).

This outstanding off-budget borrowing surged dramatically from Rs 51 crore in 2019-20 to Rs 10,135 crore by the end of 2023-24, underscoring the state’s growing dependence on off-budget borrowing for substantial capital expenditures.