CAG exposes poor financial health of Nagaland state

Dimapur, Feb. 23 (EMN): Nagaland state’s own resources (own tax and non-tax resources) during the past five years stands at a meagre 10 per cent or less of the total revenue receipts, while capital expenditure (INR 1595.56 crore) increased by 25.16 per cent, according to state finances audit report of the Comptroller and Auditor General (CAG) of India for the year ended March 31, 2019.

However, the analysis of the state’s finances based on the audited accounts of the government of Nagaland for the year ended March 2019 said that the state government generated a revenue surplus of  INR 517.43 crore during 2018-19.

Gross State Domestic Product (GSDP)

The report said that the advance estimates of GSDP for 2018-19 amounted to INR 26,637 crore, registering a 9.70% growth rate against INR 24,281 crore in 2017-18.

However, the fiscal deficit (INR 1082.32 crore) stood at 4.06 per cent of GSDP during the current year, which is exceeds the ceiling of 3.25 per cent prescribed for 2018-19 by the XIV Finance Commission and target of three per cent under Fiscal Responsibility and Budget

Management (FRBM) Act.

The state registered a revenue surplus of INR 517.43 crore during 2018-19 as stated in

FRBM Act and Medium-Term Fiscal Policy, the report said.

Significant changes in fiscal position

According to the report, the growth rate of revenue receipt was 3.80 per cent during 2018-19, which is lowest in the last five years. Revenue expenditure increased by 7.15 per cent mainly due to increase in expenditure in general service and social service; recoveries of loan and advances decreased by 0.92 per cent, and disbursement of loan and advances increased by INR 5.08 crore (2673.68 per cent).

Public debt receipts decreased by 23.25 per cent, as the state resorted to less market borrowing (INR 943.86 crore in 2018-19 as against INR 1234.69 crore in 2017-18 and repayment of public debt increased from INR 546.01 crore in 2017-18 to INR 636.89 crore in 2018-19 (16.65 per cent).

The report went on to say that public account receipts (net) increased by INR 735.25 crore, from INR 194.87 crore in 2017-18 to INR 930.12 crore in 2018-19. The total inflow increased by INR 925.70 crore, from INR 15574.86 crore in 2017-18 to INR 16500.56 crore in 2018-19. The total outflow also increased by INR 1204.74 crore from INR 15137.07 crore in 2017-18 to INR 16341.81 crore in 2018-19, it added.

Budget Estimates and Actuals

The gap between revised estimates and actual under non-tax revenue is about 26 per cent due to less revenue received in Education, Sports, Art and Culture, according to the report.

The state continued to have revenue surplus from 2014-15 to 2018-19, and fiscal deficit increased to INR 1082.32 crore in 2018-19 from the level of INR 446.09 crore in 2017-18 due to decrease in revenue surplus, increase in capital expenditure and disbursement of loan and advances, while the primary surplus decreased by INR 542.24 crore.

Resources of the state

According to annual finance accounts, the total receipts for the year 2018-19 was INR 13316.45 crore, of which INR 11437.41 crore came from revenue receipts, which increased by INR 418.20 crore at an annual growth rate of 3.80 per cent. Capital receipts of the state decreased by INR 287.19 crore (23.23 per cent) from INR 1236.11 crore in 2017-18 to INR 948.92 crore in 2018-19.

The revenue receipts of the state increased from INR 7648.67 crore in 2014-15 to INR 11437.41 crore in 2018-19 at 10.58 per cent, said the report, adding that transfers in revenue receipts of the state remained static during the last five years (2014-19).

The major contributions to the state’s tax revenue during the year were State Goods and

Services Tax (SGST) (55.48 per cent), Tax on Sales, Trade, etc., (22.06 per cent), Taxes on Vehicles (14.91 per cent). Growth rate in respect of Tax Revenue (INR 208.15 crore) of Nagaland for the period 2017-18 to 2018-19 was 32.61 per cent.

The report stated that central tax transfers during the year (INR 3792.41 crore) were more than the assessment made in Budget Estimate (INR 3777.86 crore) by INR 14.55 crore and the state’s share of union taxes and duties increased by INR 439.28 crore.

Capital receipts

Public debt receipts constituted 99.89 per cent of the capital receipts in 2018-19 and capital receipts had decreased by INR 287.19 crore due to less market borrowings and debt receipts from internal sources decreased by INR 287.18 crore, the report said.

Revenue expenditure

Revenue expenditure of the state increased by INR 4159.84 crore during the last five years at 12.74 per cent. During 2018-19, revenue expenditure increased by INR 728.63 crore as compared to previous year.

The report said that expenditure on salaries and wages increased by 51.03 per cent from INR 3274.16 crore in 2014-15 to INR 4944.95 crore in 2018-19 at a compound annual growth rate of 10.86 per cent.

 “18.99 per cent increase over the previous year was mainly due to revision of salaries as per 7th Pay Commission, release of dearness allowances and incremental benefits. It may be seen that 43.23 per cent of the revenue receipts and 45.28 per cent of revenue expenditure went towards disbursement of salary and wages during the year 2018-19.

 “The total number of government employees was 123686 during 2018-19 which comprised of 6.25 per cent of the total population of the state,” the report said.

It went on to inform that expenditure on pension had increased by INR 288.69 crore in 2018-19 and that the state government failed to contribute its share of INR 28.57 crore towards the National Pension System as well as didn’t not transfer INR 33.44 crore towards NSDL.

Capital expenditure

Capital expenditure (INR 1,595.56 crore) during 2018-19 increased by INR 320.71 crore over INT 1274.85 crore in the previous year but was ` 265.19 crore less than the Budget Estimate (INR 1860.75 crore).

The total financial assistance to local bodies and other institutions, decreased by INR 161.34 crore from INR 328.40 crore in 2017-18 to INR 167.06 crore in 2018-19. Also, the developmental expenditure (INR 7083.20 crore) was less than the assessment made by the state government in the Budget (INR 7785.85 crore) during 2018-19.

The report said that developmental revenue expenditure increased by INR 29.92 crore and developmental capital expenditure by INR 168.32 crore over the previous year.

Incomplete projects

There were 390 incomplete projects amounting to INR 1252.87 crore in the state as on March 31, 2019. Out of those, two projects amounting to INR 10.47 crore, which were taken up under PWD (Roads & Bridges), had been suspended.

 “Information regarding target year of completion in respect of 67 out of 390 projects was not furnished by the department, though called for. The remaining 323 projects were stipulated to be completed on or before 31 March 2019, and remained incomplete as of December 2019,” read the report.

It added that the possibilities of the incomplete projects being abandoned cannot be ruled out as many of the projects are over five years beyond scheduled completion date. Project cost in respect of 14 incomplete projects was revised from INR 200.90 crore to INR 339.46 crore.

Investment and returns

As on 31 March 2019, the government had invested INR 294.17 crore in government companies, statutory corporations, joint stock companies and co-operatives, while an amount of INR 0.97 crore was invested in State Mineral Development Corporation during the current year.

 “The average return on this investment was ‘Nil’ during the year 2014-15, 2016-17 and

2017-18, while there was a return of INR 4.94 crore during the year 2015-16 and 0.66 crore during the year 2018-19, which indicated non-performing investments,” the report said, adding that the government paid an average interest rate of 7.14 per cent on its borrowings during the same period.

Loans and advances

At the end of March 2019, the government had outstanding loans and advances of INR 28.89 crore. The amount of loans disbursed during the year increased by INR 5.08 crore as compared with the previous year.

During 2018-19, INR 0.46 crore of loans were repaid by the government servants and INR 0.62 crore (57.41 per cent) by the Co-operatives. The interest receipts as a percentage of outstanding loans decreased from 8.67 per cent in 2017-18 to 8.32 per cent in 2018-19.

Transactions under reserve fund

Out of the four reserve funds operated by the state government, three are operative and one (Depreciation/Renewal Reserve Fund- INR 0.07 crore) was dormant. The total accumulated balance at the end of 31 March 2018 in the reserve funds was INR 2177.72 crore, of which INR 1104.20 crore (50.70 per cent) had been invested, the report said.

Assets and liabilities

The fiscal liabilities at the end of the year stood at INR 11649.96 crore and the total outstanding debt of the state government at the end of 2018-19 was INR 11649.96 crore.

Ways and Means Advances

The state government availed Ways and Means Advances (WMA) of INR 1959.38 crore in 2018-19 and discharged the full amount. State resorted to Special WMA of INR 1033.62 crore where the advances are provided against the pledge of GoI, which attract higher interest rates. However, the overall position of minimum cash balance with RBI improved over previous year.

Recommendations

• The CAG has recommended the state government to explore the possibility of mobilising additional resources through tax and non-tax sources to bring down its fiscal deficit.  
• Under NPS, the government should ensure that employees’ contributions are fully deducted, fully matched by the government contributions and fully transferred to NSDL/Trustee Bank in a timely manner to avoid interest liability.
• Efforts should be made to increase the capital expenditure in order to improve the productive capacity of the state’s economy.
• State government should review the working of loss making corporations, companies and co-operative societies and take appropriate action to avoid further financial burden.
• The government should thoroughly examine the reasons for the delay in 390 projects and take corrective action to complete them.