Gujarat: Ahead of elections, parties continue to promise freebies even as state's finances sink

The CAG’s ‘State Finances Audit Report’ as on Mar 31, 2021, warned that Gujarat is walking into a debt trap, for the state will have to repay as much as Rs1,67,000 crore, or 61% of this huge public debt, in the next seven years.

Darshan DesaiUpdated: Saturday, September 24, 2022, 11:22 PM IST
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Gujarat CM Bhupendra Patel with PM Narendra Modi | Twitter/@ANI

Ahmedabad: While the Aam Aadmi Party (AAP) and the Congress are busy promising more freebies and the ruling BJP is succumbing to demands from various state employee associations on the path of agitation, few care to look at the legacy of astronomical public debt already created by the state government.

The latest report of the Comptroller and Auditor-General of India (CAG), which was released on Mar 31, states that the public debt of the Gujarat government stood at Rs 3,08,000 crore as of Mar 31, 2021, almost 50% more than the state’s annual budget of Rs2,40,000 crore for 2022-23.

That is not all. The CAG’s ‘State Finances Audit Report’ as on Mar 31, 2021, warned that Gujarat is walking into a debt trap, for the state will have to repay as much as Rs1,67,000 crore, or 61% of this huge public debt, in the next seven years.

More alarmingly, Gujarat’s public debt is projected to touch Rs4,50,000 crore by the end of 2024-25 – less than three years from now. And that without accounting for the poll goodies.

More startling is that the CAG report avers that while Gujarat’s Gross State Domestic Product (GSDP) rose at a compounded annual growth rate (CAGR) of 9.19% between 2016 and 2021, outstanding public debt shot up at a CAGR of 11.49%.

The Gujarat government has been patting its back for being the only “revenue-plus” state in the country, but the CAG has this to say: “The state achieved ‘zero’ revenue-deficit targets in 2011-12 and reported a revenue surplus thereafter till 2019-20. The state turned revenue-deficit for the first time in 2020-21, with a deficit of Rs22,548 crore, against the target of a revenue surplus of Rs789 crore proposed in the medium-term fiscal policy statement.”

In an ideal fiscal situation, a government goes in for public borrowings to invest in creation of long-term and permanent capital assets – equivalent to an individual taking loans to buy a house or a motor vehicle – but not for its revenue expenditure or running the day-to-day government. These expenses are usually met from tax collections.

In reference to financial year 2021, the CAG stated, “Since Gujarat turned revenue deficit for the first time since 2011-12, this year borrowed funds were used for revenue expenditure as well as capital expenditure and repayment of debt.” Simply put, the state took loans to repay loans, meet day-to-day expenses and also capital expenditure.

In this case, the CAG also found that in FY2021, the Gujarat government underreported its revenue deficit by as much as Rs10,997 crore. “The state’s actual revenue deficit would stand at Rs33,525 crore during 2020-21, if the items of shortfall in the state government’s contribution to consolidated sinking fund, non-discharge of interest liabilities, and incorrect classification are factored in,” the audit watchdog pointed out.

The CAG thus indicated some smart fudging by the government, stating that the government passed off a part of the revenue expenditure as capital and off-budget works.

For perspective, when the BJP first came to power in Gujarat in 1995, the state government’s public debt stood at Rs10,000 crore. It had shot up to Rs45,301 crore in 2001-02 when Narendra Modi took over as Chief Minister. In 2014, when Anandiben Patel came in as Chief Minister after Modi became the Prime Minister, Gujarat’s public debt was Rs2,21,000 crore.

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