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Looming Debt Trap

State must improve financial situation through prudent financial management

The Comptroller and Auditor General (CAG) has advised the Goa government to evolve a strategy to avoid falling into a debt trap. The CAG has said that it would be wise for the state to adopt a well planned borrowing-repayment approach to come out of the current economic situation. The state could consider developing a debt sustainability framework for achieving an improved long-term sustainability in fiscal deficit management and to guide the borrowing decisions that match its financing needs with current and prospective repayment of loans. The CAG has made the recommendations based on analysis of the state’s report for the financial year ended on March 31, 2018, which has revealed that the maturity profile of the state debt indicated that the liability of the state to repay the debt during the periods of 2018-19, 2019 to 2021 and 2021 to 2023 would be Rs 888 crore, Rs 1,676 crore and Rs 2,126 crore, respectively, which is likely to put a serious strain on the government finances during the period.

It is pertinent to note that the CAG report indicates that while servicing public debt, the state government has repaid the principal loan amount (Rs 2,395 crore) together with interest (Rs 4,211 crore) which totals to Rs 6,606 crore between the financial years 2013-14 and 2017-18. An amount of Rs 7,093.41 crore, that is 52.11 per cent of the total debt, would be repayable within the next seven years. With debts mounting, the state government needs to work out a well-thought out borrowing-repayment strategy to avoid falling into a debt trap. It is not only debt trap that the state needs to avoid, it also needs to curb financial falsification by various government departments in view of atleast 13 cases of financial misdemeanour reported and ensure that there was total financial probity. The central auditor has found that in seven offices, cash books were not written for part of the period under audit, which indicates that the supervisory officers did not exercise the necessary due diligence.

The CAG has also exposed a scam in the Goa Industrial Development Corporation, which acquired and allotted 2.24 lakh square metres of land to a company on request for manufacturing copper strips and alloys. The company utilised only 27,682 sq mt of land for a period of 17 years but used the entire land as collateral to raise loan of Rs 111.60 crore, on which it defaulted, leading to the lender taking over the land. The report states that the balance land remained unutilised for over 15 years and was transferred to another party for non-industrial use without following the due process. When executing the transfer deed, the GIDC short-recovered transfer fee by Rs 26.61 crore. The CAG has also pointed out that four state government undertakings – GHRSSIDC, Kadamba Transport Corporation, GEL and GAAL – were in financial crisis and hence turned out to be white elephants, accumulating losses year-over-year. These four PSUs have recorded accumulated losses of Rs 154.32 crore. The KTC has recorded maximum net worth erosion which has been pegged at Rs 118.16 crore.

As some public sector undertakings have turned into white elephants it is necessary that government comes out with a mechanism that would streamline their operations and curtail further losses. It is necessary that PSUs are run on professional lines so as to turn their fortunes. At a time when the state is going through financial distress, it should be the endeavour of the authorities to ensure that every rupee due to government flows into state coffers and is appropriately accounted for. The state government should come out with a thorough mechanism to prevent instances of misappropriation of government funds allowing no scope for manipulation of account. Though nearly five years have elapsed since the government introduced collection of fees through e-payment gateway, fees, taxes, etc still continue to be collected in cash, a system which has scope for manipulation of records and misappropriation. The government needs to address this issue on priority and ensure that every rupee collected in cash is deposited in the state treasury within the stipulated period and that the amount is not embezzled. The best way to come out of the situation is prudent financial management and probity.

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