CAG paints grim fiscal picture, flags Punjab’s mounting deficits

Last week, Niti Aayog’s 2026 Fiscal Health Index for 2023-24 also placed Punjab at the bottom among 18 major states in the country. With a composite score of 12.4 out of 100, the state fared poorly on the quality of expenditure, fiscal prudence, debt index, revenue mobilisation, and debt sustainability.

Punjab’s fiscal stress is rising due to a continuous mismatch between receipts and expenditure, increasing deficits, growing liabilities, and the use of borrowed funds for meeting current consumption and debt servicing – factors that are putting pressure on the state’s financial sustainability.

Another concern raised by the CAG was the quantum of committed expenditure on interest payments, salaries and pensions constituting 62-69% percent of revenue expenditure from 2019-20 to 2023-24.

These findings, which highlight a troubling pattern, were made by the Comptroller and Auditor General (CAG) in its report on state finances for 2023-24. The report was tabled in the Punjab Vidan Sabha on Monday, the last day of the budget session. The report revealed that the state’s finances were marked by an increasing trend of liabilities – debt, guarantees, off-budget borrowings, etc, which pose a risk to the target of debt stabilisation and debt sustainability. It said that, going by the fiscal trends, the state finances are heavily stressed.

The federal auditor said the reversion to the old pension scheme will add to this fiscal stress, as breaching the levels of the fiscal indicators continuously may lead to the risk of the fiscal situation becoming unmanageable. “The state’s fiscal sustainability faces risks in the short to medium term unless remedial measures are taken to rationalise expenditure, explore further sources of income, expand the revenue base, and invest in revenue-generating assets,” it stated, flagging its concerns.

Last week, Niti Aayog’s 2026 Fiscal Health Index for 2023-24 also placed Punjab at the bottom among 18 major states in the country.

With a composite score of 12.4 out of 100, the state fared poorly on the quality of expenditure, fiscal prudence, debt index, revenue mobilisation, and debt sustainability.

Spending beyond means

According to the report, the gap between the revenue receipts and revenue expenditure resulted in the state’s revenue deficit, which increased to ₹28,215 crore (3.79% of gross state domestic product) in 2023-24 from ₹14,285 crore (2.66% of GSDP) in the financial year 2019-20. What’s more, the upward trend in committed and inflexible expenditure left the state government with less flexibility for other priority sectors and capital creation.

The state government spent only ₹4,743 crore - 3.88% per cent of the total expenditure – on the capital account. Capital expenditure was just 4.40% of the total borrowings, using borrowed funds mainly for meeting current consumption and repayment of borrowings instead of capital creation or development activities. “Borrowed funds should ideally be used to fund capital creation and developmental activities. Using borrowed funds for meeting current consumption and repayment of interest on outstanding loans is not a healthy trend,” it observed.

The report also highlighted that the gap between the total expenditure and total non-debt receipts of the state resulted in a fiscal deficit, which increased to ₹33,115 crore, or 4.45% of GSDP, in 2023-24 from ₹16,826 crore, or 3.13% of GSDP, in 2019-20. GSDP was ₹7,44,899 crore in 2023-24.

Rising committed expenditure, less flexibility for priority areas

Another concern raised by the CAG was the quantum of committed expenditure on interest payments, salaries and pensions constituting 62-69% percent of revenue expenditure from 2019-20 to 2023-24. The committed expenditure increased at a compound annual growth rate of 9.78% from ₹52,544 crore in 2019-20 to ₹76,388 crore in 2023-24. Similarly, inflexible expenditure increased from 7.95% to 10.58% of revenue expenditure. Together, committed and inflexible expenditure in 2023-24 was 75.64% per cent of the revenue expenditure. It said that the upward trend in committed and inflexible expenditure left the government with less flexibility for other priority sectors and capital creation.

Off-budget borrowings

A key concern highlighted by the auditor was related to public sector undertakings and parastatals raising ₹4,092.78 crore as off-budget borrowings as on 31 March 2024, which did not flow into the Consolidated Fund of the State but are required to be repaid and serviced through the budget. It said that if these off-budget liabilities were also taken into account, the actual total outstanding liability to GSDP ratio would have been 44.27% instead of 43.72%. The CAG raised questions over the quality of government accounts and the non-submission of utilisation certificates against conditional grants. It said that 597 outstanding UCs of ₹3,089.57 crore were pending as on 31 March 2024, and ₹406.98 crore collected on account of cess, levies, etc were not deposited into the government account by the drawing and disbursal officers. It also highlighted the issue of parking of funds outside the government accounts and non-discharge or short-discharge of liabilities. The auditor also pointed out that budgetary allocations were being based on unrealistic proposals and a rush of expenditure at fag end of the year.