CAG Murmu says there is need to distinguish between justifiable subsidies and freebies

Comptroller & Auditor General of India Girish Chandra Murmu on Monday advised states to meet their capital expenditure from their own revenue sources and emphasised the need to distinguish between justifiable subsidies and freebies, which are not fiscally responsible. Speaking at the one-day Annual Accountant General’s Conclave, Murmu also stressed that states must take steps to maintain proper accounting of subsidies and take prudent measures to reduce fiscal deficits, remove revenue deficits and keep outstanding debts at an acceptable level.

According to him, states must meet their capital expenditure, including loans and advances, from their own sources of revenue, or at the least confine the net debt to their capital expenditure.

“While we understand the importance of subsidies to help the underprivileged, it is essential to transparently account for such subsidies and we require to distinguish between justifiable subsidies from freebies, which are not fiscally responsible,” he said.

The remarks assume significance amid ongoing controversy over freebies doled out by political parties ahead of elections.

He said that the states must initiate measures to earn adequate returns on their investments and recover their cost of borrowed funds without resorting to implicit subsidies.

All states must strive to meet their capital expenditure requirements, including loans and advances, from their own sources of revenue, Murmu said.

To improve fiscal management, both the Union government and many state governments have been implementing the Fiscal Responsibility and Budget Management (FRBM) Act. “We, however, continue to notice fiscal sustainability risks and financial indiscipline in many states due to off-budget borrowings, mis-classification of revenue expenditure as capital expenditure and because state guarantees are not getting captured in finance accounting,” he said.

These factors make qualitative and timely preparation of accounts by CAG one of the most important responsibilities to tackle these challenges, Murmu said.

He also observed that state finances have undergone several changes in recent years as a result of implementation of the FRBM Act, computerisation of treasuries and implementation of the Integrated Financial Management System (IFMS).

The Accountant General’s conclave was organised by CAG’s Government Accounts (GA) Wing.

It was attended by Principal Accountants General and Accountants General (A&E) to discuss issues regarding the maintenance of accounts of state governments, as mandated under the Constitution of India.