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Need for fiscal prudence

Need for fiscal prudence
Highlights

The Comptroller and Auditor General’s (CAG) report on state finances presented to the Telangana legislature has once again underlined the need for fiscal prudence. Despite legislative mandate for fiscal responsibility and prudent budget management, the annual reports of CAG expose the fiscal vulnerabilities in public finances. 

The Comptroller and Auditor General’s (CAG) report on state finances presented to the Telangana legislature has once again underlined the need for fiscal prudence. Despite legislative mandate for fiscal responsibility and prudent budget management, the annual reports of CAG expose the fiscal vulnerabilities in public finances.

The CAG pointed out that the revenue surplus is overstated and fiscal deficit is underestimated. The report states that the accounting provisions were violated to inflate revenue receipts.

The lack of fiscal prudence will have an adverse impact on the process of turning outlays into outcomes. As the CAG report itself reveals, capital projects in irrigation and road sector were not completed in time, resulting in non-achievement of the envisaged benefits to the people. The time and cost overruns in implementation of projects shall have grave implications for the state exchequer.

The latest budget too speaks of greater emphasis on development expenditure. But, the experience for the fiscal 2015-16, as reported by the CAG, reveals that the government could not ensure that the allocated funds released were utilised optimally for the intended purposes.

Such inept budget management results in gap between outlays and outcomes. The poor return on investment shall undermine its fiscal health. The higher proportion of short-term debt also impacts the fiscal health of the state.

The CAG report presents evidence of unrealistic budgetary assumptions and weaknesses in expenditure monitoring and control. In 2015-16, for which the final estimates are now available, the actual expenditure incurred is substantially less than the budget provision.

The gap between what was budgeted and what has been spent is to the tune of 25 per cent, raising critical questions on the sanctity of the budget estimates. Often the Finance Ministers make lofty statements of policy initiatives in their budget speeches.

But, accountability in ensuring that these policies are properly grounded seems to be seriously lacking. The CAG report states that several policy initiatives taken up by the government were either unfulfilled or were partially executed due to a host of factors like non-approval of scheme guidelines, non-commencement of work for want of administrative sanction and poor project implementation apart from the non-release of the budget.

Even excess expenditure is incurred without legislature’s authorisation. This tantamounts to a serious lapse as nothing can be spent without legislative sanction, as per the Constitution. Besides instances of poor budget management, the CAG report also cites several cases of improper financial reporting, diluting the fiscal accountability.

Prudent fiscal management, financial discipline, efficient project management, fiscal accountability and preserving the sanctity of budget are essential components of good governance. Despite CAG reports repeatedly pointing out such lapses, little is done to ensure fiscal responsibility and budget management.

However, the Telangana government cannot be singled out in this regard. The problems cited and issues raised in the CAG reports for the state of Telangana are the general characteristics of public finances in India.

The concept of fiscal responsibility and budget management (FRBM) enshrined in the said law cannot be reduced to legislative curbs on public expenditure. The true spirit of FRBM is effective management of public finances to achieve desired goals set out in the budgets.

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