Audit Reports

Overview

Executive Summary

Background
In response to the 12th Finance Commission’s (FC) recommendations, the
Government of Gujarat enacted the Gujarat Fiscal Responsibility Act, 2005
which incorporated the objectives of prudence in fiscal management, fiscal
stability by progressive elimination of revenue deficit, sustainable debt
management and greater transparency in the fiscal operations of the
Government.
To maintain a stable and sustainable fiscal environment consistent with
equitable growth, the 13th FC recommended a fiscal consolidation roadmap for
the States by amending their Fiscal Responsibility Legislations. The Gujarat
State Legislature in March 2011 amended its Fiscal Responsibility Act in line
with the recommendations of the 13th FC.
Recognising that the fiscal environment should be conducive to equitable
growth, the 14th FC recommended that the States should target improving the
quality of fiscal management encompassing receipts and expenditures while
adhering to the roadmap outlined by 14th FC.
The Report
Based on the audited accounts of the Government of Gujarat for the year
ending March 2018, this Report provides an analytical review of the Annual
Accounts of the State Government. The Report is structured in three Chapters.
Chapter I is based on the Finance Accounts and makes an assessment of the
Government’s fiscal position as on 31 March 2018. It provides an insight into
trends of different components of the Government’s receipts, expenditure and
borrowing pattern, besides giving a brief account of fiscal imbalances.
Chapter II is based on the Appropriation Accounts and gives a grant-wise
description of appropriations and the manner in which the allocated resources
were managed by the service delivery Departments.
Chapter III is an inventory of the Government’s compliance with various
reporting requirements and financial rules.
The Report also has additional data collated from several other sources in
support of the findings.
Executive Summary
State Finances Audit Report viii
for the year ended 31 March 2018
Achievements of the State Government: A Brief Summary
The per capita income of Gujarat at ₹ 2,06,447 during 2017-18 was higher
than the all India average of ₹ 1,29,800. The State achieved all the targets of
major fiscal variables set under the Gujarat Fiscal Responsibility Act, 2005.
The State has been revenue surplus since 2011-12. The ratios of fiscal deficit
as well as public debt to Gross State Domestic Product (GSDP) at
1.62 per cent and 16.10 per cent respectively were significantly better than
that achieved by the Government of India (3.53 per cent and 39.07 per cent
respectively). The State Government spent 98 per cent of the total public debt
receipts on capital expenditure, indicating better utilisation of borrowed funds
for capital formation in creating productive assets. Investment held in ‘Cash
Balance Investment Account’ by the State Government came down from
₹ 12,750 crore at the end of 2016-17 to ₹ 5,198 crore at the end of 2017-18,
indicating better utilisation of cash balances.
The outstanding guarantees of the State at ₹ 4,834 crore during
2017-18 was much lower than the ceiling of ₹ 20,000 crore prescribed under
the Gujarat State Guarantees Act, 1963. The quantum of outstanding
utilisation certificates in terms of numbers and money value has shown a
decreasing trend from 2015-16 (6,115 and ₹ 3,686.07 crore) to 2017-18 (2,465
and ₹ 1,996.80 crore). The tax and non-tax revenue receipts of the State
showed an increasing trend during the last five years. All the four State-owned
power distribution companies (DISCOMS) achieved financial turnaround in
2005-06 and no financial assistance is being provided by State Government
under Ujwal DISCOM Assurance Yojana (UDAY) Scheme.
The State also took initiatives for better fiscal management by setting up of the
Consolidated Sinking Fund to provide a cushion for repaying market loans of
states and the Guarantee Redemption Fund to provide a cushion for servicing
any contingent liabilities. As on 31 March 2018, balances in both the funds
exceeded the minimum requirement prescribed for administration of these
funds.
The State Government, however, needs to improve its Tax-GSDP ratio
(5.42 per cent) which was lower than the GoI ratio of 7.42 per cent during
2017-18.
Contents of the Report
Chapter I
Finances of the State Government
Fiscal position
The State achieved the target of elimination of revenue deficit in 2011-12 and
reported a revenue surplus of ₹ 3,215 crore in that year. The revenue surplus
continued thereafter in successive years and stood at ₹ 5,232 crore in 2017-18,
Executive Summary
ix State Finances Audit Report
for the year ended 31 March 2018
which was lower than the projections made in the Medium Term Fiscal Policy
Statement (MTFPS) and 14th FC targets for 2017-18.
At the end of 2017-18, the fiscal deficit as percentage to GSDP stood at
1.62 per cent, which was within the limit of three per cent recommended by
14th FC and that of the Government’s own projections of 1.82 per cent in
MTFPS.
The State Government maintained the percentage of public debt to GSDP at
16.10 during 2017-18, against the target of 16.83 per cent set in MTFPS. In
the fiscal consolidation roadmap, the 14th FC had recommended the percentage
of outstanding liabilities1 to GSDP at 25.83 for 2017-18, against which, the
actual outstanding liabilities stood at 19.42 per cent.
The fiscal deficit increased from ₹ 18,422 crore in 2013-14 to ₹ 21,366 crore
in 2017-18. Significant increase in fiscal deficit during the current year
(29.65 per cent) was mainly on account of increase in capital expenditure
(₹ 3,958 crore) and a decrease of revenue surplus (₹ 715 crore) compared to
the previous year.
Indian Government Accounting Standard (IGAS)-2 prescribes that
Grants-in-aid should be booked under revenue expenditure. However, during
2017-18, the State Government incorrectly budgeted and booked expenditure
of ₹ 119.38 crore relating to grants-in-aid under the capital section instead of
the revenue section. This resulted in understatement of revenue expenditure
and consequent overstatement of revenue surplus to that extent.
(Paragraph 1.1.2)
Trends in deficits
An increase of ₹ 4,886 crore in the fiscal deficit together with an increase of
₹ 1,157 crore in interest payment in 2017-18 over the previous year turned the
primary surplus of ₹ 1,317 crore in 2016-17 to a primary deficit of
₹ 2,412 crore in 2017-18.
(Paragraph 1.11.1)
Cash Balance Investment Account
The investment held in ‘Cash Balance Investment Account’ by the State
Government stood at ₹ 12,750 crore, at the end of 2016-17 and came down to
₹ 5,198 crore at the end of 2017-18, indicating better utilisation of cash
balances.
(Paragraph 1.8.5.2)
1 Total Outstanding Liabilities include Public Debt and Public Account Liabilities. Public Debt includes
only Internal Debt and Loans from Government of India. Public Account Liability includes liabilities
under small saving funds, GPF, Reserve funds etc.
Executive Summary
State Finances Audit Report x
for the year ended 31 March 2018
State’s own resources
The tax revenue of the State in 2017-18 stood lower by a significant margin of
₹ 41,170 crore vis-à-vis the 14th FC projections of ₹ 1,12,719 crore. Also, the
tax revenue in 2017-18 was lower than the budget estimates and revised
estimates. The State received Goods and Services Tax compensation of
₹ 3,687 crore till March 2018 to compensate for decrease in revenue on
implementation of Goods and Services Tax Act, 2017. Actual non-tax revenue
(₹ 15,074 crore) was higher than the 14th FC projections but lower than the
budget estimates and revised estimates.
(Paragraphs 1.3.3 and 1.3.5.1)
Revenue expenditure
The share of revenue expenditure in total expenditure increased from
76.38 per cent in 2013-14 to 81.42 per cent in 2017-18. Whereas, the share of
capital expenditure in total expenditure decreased from 23.01 per cent in
2013-14 to 18.15 per cent in 2017-18.
Revenue expenditure continuously increased from ₹ 75,259 crore in 2013-14
to ₹ 1,18,060 crore in 2017-18, with an increase of ₹ 14,165 crore
during 2017-18 over the previous year. The growth rate of revenue
expenditure fluctuated widely from a low of 8.04 per cent in 2013-14 to a high
of 15.14 per cent in 2014-15. Revenue expenditure as a per cent of GSDP
decreased over the last four years (2014-18) and stood lowest at 8.94 per cent
during 2017-18.
(Paragraph 1.6.2)
Efficiency of expenditure
Development expenditure of the State comprises revenue and capital
expenditure including loans and advances on socio-economic services. The
development expenditure increased from ₹ 70,525 crore in 2013-14 to
₹ 1,02,203 crore in 2017-18. As a percentage of the total expenditure, the
development expenditure of the State decreased slightly from 70.88 per cent in
2016-17 to 70.48 per cent in 2017-18.
(Paragraph 1.7.2)
Investment and returns
As of 31 March 2018, the State Government invested ₹ 86,113.96 crore in
statutory corporations, Government companies, rural banks, joint stock
companies, co-operative institutions and local bodies. The average return on
investments in these companies/corporations/institutions was 0.21 per cent
during 2013-18 while the Government paid an average interest of
7.67 per cent on its borrowings during the same period.
(Paragraph 1.8.3)
The investment in 73 working State Public Sector Undertakings increased
from ₹ 1,10,319.66 crore in 2013-14 to ₹ 1,56,615.95 crore in 2017-18. The
return on investments ranged between 4.90 per cent and 6.82 per cent during
Executive Summary
xi State Finances Audit Report
for the year ended 31 March 2018
2013-18. Similarly, the total equity of the State Public Sector Undertakings
increased from ₹ 69,689.57 crore in 2013-14 to ₹ 99,784.53 crore in 2017-18.
The return on equity ranged between 0.27 per cent and 2.56 per cent during
2013-16 while it was nil during 2016-18 due to net losses.
(Paragraph 1.8.3.1)
Transactions under reserve funds
There were 15 Reserve funds earmarked for specific purposes during 2017-18
of which, five funds were inoperative with a balance of ₹ 2.11 crore. The total
accumulated balance in these funds as on 31 March 2018 was
₹ 14,931.88 crore of which, ₹ 11,686.04 crore was invested.
(Paragraph 1.9.3)
Debt sustainability
The total outstanding liabilities of the State increased from ₹ 1,83,057 crore in
2013-14 to ₹ 2,56,366 crore in 2017-18. The outstanding liabilities at the end
of 2017-18 comprised of internal debt (₹ 2,06,643 crore), loans and advances
from the Central Government (₹ 5,947 crore) and other liabilities
(₹ 43,776 crore). The percentage of total outstanding liabilities to GSDP has
continuously reduced from 23 per cent (2013-14) to 19 per cent (2017-18).
The net availability of borrowed funds for current operations after debt
redemption (principal and interest payments) was negative, as debt redemption
was more than debt receipts.
(Paragraph 1.10.1)
Chapter II
Financial Management and Budgetary Control
Against total provision of ₹ 1,82,971 crore during 2017-18, an expenditure of
₹ 1,61,063 crore was incurred. This resulted in net savings of ₹ 21,908 crore
(savings of ₹ 22,242 crore offset by an excess of ₹ 334 crore). The major
Departments incurring excess expenditure during last five years were
Agriculture and Co-operation; Education; Forests & Environment; Health and
Family Welfare; Narmada, Water Resources, Water Supply and Kalpsar;
Panchayat, Rural Housing and Rural Development; and Roads and Buildings.
(Paragraphs 2.2 and 2.3.1)
Substantial surrenders (more than 50 per cent of the total provision or
₹ one crore or more) were made in respect of 714 Sub-Heads under 96 grants
with a total provision of ₹ 76,471.68 crore of which, ₹ 21,617.53 crore
(28.27 per cent) was surrendered. This included 100 per cent surrender in 210
Sub-Heads involving ₹ 8,509.63 crore. The major Departments were Finance;
Agriculture and Co-operation; Revenue; Narmada, Water Resources, Water
Supply and Kalpsar; and Social Justice and Empowerment.
(Paragraph 2.3.7.1)
Executive Summary
State Finances Audit Report xii
for the year ended 31 March 2018
At the close of 2017-18, there were three grants/appropriations under which
savings exceeded 10 per cent of the total provisions but the same had not been
surrendered by the concerned Departments. The total savings involved in these
cases was ₹ 346 crore. Of ₹ 346 crore, ₹ 345 crore pertained to Education
Department, which was not surrendered.
(Paragraph 2.3.7.3)
Chapter III
Financial Reporting
As on March 2018, 2,465 utilisation certificates aggregating ₹ 1,996.80 crore
in respect of grants disbursed up to 2016-17 remained outstanding, indicating
lack of proper monitoring by the Departments in utilisation of grants given for
specific purposes. Of ₹ 1,996.80 crore, 46 per cent (₹ 922.51 crore) pertained
to the Agriculture and Co-operation Department while 14 per cent
(₹ 271.73 crore) pertained to the Urban Development and Urban Housing
Department. However, the number of outstanding utilisation certificates as
well as their money value has shown a decreasing trend over the period
2015-18.
As on March 2018, there was pendency in submission of 4,476 detailed
contingent bills amounting to ₹ 514.54 crore drawn on abstract contingent bills
by various Departmental authorities.
Pendency of utilisation certificates and detailed contingent bills for long
periods was fraught with the risk of fraud and misappropriation.
(Paragraphs 3.1 and 3.2)
There were delays in submission/non-submission of accounts by autonomous
bodies/authorities. Of 209 bodies/authorities audited under Section 14 of
CAG’s (DPC) Act, 1971, accounts of 34 bodies/authorities were in arrears for
more than five years. Only seven of the 62 autonomous bodies audited under
Section 19 (2), 19 (3) and 20 (1) of CAG’s (DPC) Act, 1971 had submitted
their accounts within the prescribed time frame.
(Paragraphs 3.3.2 and 3.4)
There were 482 personal deposit accounts in operation in district treasuries
with a closing balance of ₹ 447.41 crore as of 31 March 2018. The Education
Department held the highest number of personal deposit accounts (171),
followed by Agriculture and Co-operation Department (69) and General
Administration Department (54). There were also 280 personal ledger
accounts pertaining to Panchayats at the district and the taluka level with a
closing balance of ₹ 12,785.81 crore as of 31 March 2018.
(Paragraph 3.5)
The State Government reported 157 cases of misappropriation, losses,
defalcation, etc. involving Government money of ₹ 14.40 crore (up to
March 2018) on which final action was pending.
(Paragraph 3.6)
Executive Summary
xiii State Finances Audit Report
for the year ended 31 March 2018
During 2017-18, expenditure aggregating ₹ 11,017.30 crore constituting
6.94 per cent of the total expenditure of the State was classified under Minor
Head ‘800-Other Expenditure’. The major defaulting Departments were
Revenue; Panchayats Rural Housing and Rural Development; Industries and
Mines; Roads and Building; Education; and Women and Child Development.
Similarly, revenue receipts aggregating ₹ 2,336.52 crore constituting
1.90 per cent of total receipts of the State were classified under omnibus
Minor Head ‘800 – Other Receipts’. The major defaulting Departments were
Agriculture and Co-operation; Industries and Mines; Narmada, Water
Resources, Water Supply and Kalpsar; and Finance. Budgeting of large
amounts under the omnibus Minor Head 800-Other Expenditure/Receipts
affects transparency in financial reporting, as it fails to indicate disaggregated
information on different activities of the Government separately in the
accounts.
(Paragraph 3.7)

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• Report No.2 of 2019 State Finance of Government of Gujarat