With Punjab's "dependence" on market borrowings going up, the "sizeable" portion of fresh borrowings were utilised for repayments of past debt and "minuscule" part of debt was spent on capital expenditure for asset creation, says a CAG report.
In the latest report on state finances, the Comptroller and Auditor General of India (CAG) has advised Punjab government to give due priority to capital expenditure and utilise the debt receipts for asset creation.
The government auditor while analysing the state's public debt management found that the dependence of the state government has been increasing on market borrowings every year.
CAG observed that the percentage of market loans to total debt has jumped from 32.71 per cent in 2009-10 to 49.22 per cent in 2013-14, "which indicates that dependence of government on market loans has been increasing year by year."
The size of market borrowings increased from Rs 22,235 crore from 2009-10 to Rs 50,318 crore in 2013-14. The total outstanding liabilities of the state was pegged at Rs 1,02,234 crore as on March 31, 2014.
CAG noted that of all the constituents of outstanding liabilities of the government, the market loans need special attention because the interest rates thereon may go up if in the market perception, the government debt is unsustainable.
On application of borrowings, the government auditor found that major portion of borrowings was utilised for repayment of earlier debt with percentage of utilisation of borrowings for repayment of past borrowings increasing every year.
As per report, the percentage of utilisation of borrowings for repayment of earlier borrowings went up from 52.52 per cent in 2009-10 to 69.11 per cent in 2013-14.
Whereas the percentage of utilisation of borrowings for capital expenditure dropped to 9.11 per cent in 2013-14 from 21.43 per cent in 2009-10, it said.
Out of total borrowings of Rs 24,140 crore in 2013-14, Rs 16,682 crore were used for repayment of past debt while Rs 2,200 crore and Rs 5,256 crore were utilised for capital expenditure and revenue expenditure respectively.
The government auditor further observed that net capital expenditure as percentage to GSDP declined from 1.10 per cent in 2009-10 to 0.69 per cent in 2013-14, which shows that the borrowed funds were used to meet revenue expenditure instead of using it for creation of assets.
CAG further said the state government did not make any contribution to the Sinking Fund since inception, saying had the contribution been made, there would have been consequential impact on revenue expenditure and revenue deficit.
Punjab government had constituted a sinking fund for loans raised by it from open market. It had to contribute 0.50 per cent of outstanding liabilities to the fund.